Issues in Money Demand: The Case of Europe

20 Pages Posted: 28 Oct 2004

See all articles by Michael J. Artis

Michael J. Artis

University of Manchester - Institute for Political & Economic Governance (IPEG)

Andreas Beyer

European Central Bank (ECB)

Abstract

This article establishes a co-integration analysis for the euro area (sample period: 1983-2000), identifying three co-integrating vectors: one which can be labelled money demand (in which real M3 money balances are related to output, with unit elasticity, and the long rate of interest); another pertaining to the spread between the short and long rate of interest; and a third which is an output (IS) relationship in which output is related to the real rate of interest. Currency substitution terms affect the adjustment of real money balances though they do not enter the co-integration space. We use the aggregation procedure for historical Euroland data advocated by Beyer, Doornik and Hendry for application to aggregation of money, GDP and prices when exchange rates were varying. We make use of the German short- and long-term interest rates as benchmarks for own rate and opportunity cost variables.

Suggested Citation

Artis, Michael J. and Beyer, Andreas, Issues in Money Demand: The Case of Europe. Available at SSRN: https://ssrn.com/abstract=608494

Michael J. Artis (Contact Author)

University of Manchester - Institute for Political & Economic Governance (IPEG) ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Andreas Beyer

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6468 (Phone)
+44 69 1344 6000 (Fax)

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