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The Demand for M3 in the Euro Area (1999)
| Citations: | 68 - 2 self |
BibTeX
@MISC{Coenen99thedemand,
author = {Günter Coenen and Juan-Luis Vega and Günter Coenen},
title = {The Demand for M3 in the Euro Area},
year = {1999}
}
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Abstract
In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long- and the short-term nominal interest rates, (ii) the long-term real interest rate, and (iii) a long-run demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the long-run parameters. Hence, following a general-to-specific modelling approach, a parsimonious conditional error-correction model for M3 money demand is derived which can be interpreted economically. For the conditional model, longand short-run parameter stability is extensively tested and not rejected. Insights into the dynamics of money demand are gained by means of SVAR techniques exploring the impulse response functions of the cointegrated multivariate system.
Keyphrases
euro area multivariate system m3 money demand money demand short-run parameter stability long-run demand long-run parameter parsimonious conditional error-correction model short-term nominal interest rate conditional model broad money m3 long-term real interest rate general-to-specific modelling approach impulse response function stable money demand model economic content svar technique
