The demand for M3 in the euro area

Günter Coenen () and J.-L. Vega
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J.-L. Vega: Directorate General Research, European Central Bank, Frankfurt am Main, Germany, Postal: Directorate General Research, European Central Bank, Frankfurt am Main, Germany

Journal of Applied Econometrics, 2001, vol. 16, issue 6, pages 727-748

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-term 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, long-run and short-run parameter stability is extensively tested and not rejected. Copyright © 2001 John Wiley & Sons, Ltd.

Date: 2001
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Related works:
Working Paper: The demand for M3 in the euro area (1999)
Working Paper: The Demand for M3 in the Euro Area (2000)
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