The Stability of the Euro-Demand Function

King Banaian and Artatrana Ratha ()

No 2008-1, Working Papers from Saint Cloud State University, Department of Economics

Abstract: While the empirical literature on money demand is vast by any standards, it is relatively silent when it comes to the Euro, a major currency in the world. This hampers efforts, for example, to determine whether or not the European Central Bank can target monetary aggregates for inflation control. The difficulty has come from the lack of information about euro-wide monetary behavior, relying instead on speculative techniques for aggregating country-level data from previous periods of the European exchange rate mechanism. Now that we have six years of monthly data points, we investigate the stability of various Euro-zone monetary aggregates using the Bound Testing Procedure of Cointegration proposed by Pesaran et al. (2001) and study their policy implications.

Keywords: money demand; euro; cointegration (search for similar items in EconPapers)
JEL-codes: E41 (search for similar items in EconPapers)
Date: 2007-08, Revised 2007-08
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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