Economic and Monetary Integration and the Aggregate Demand for Money in the EMS

Jeroen J. M. Kremers and Timothy D. Lane
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Jeroen J. M. Kremers: International Monetary Fund
Timothy D. Lane: International Monetary Fund

IMF Staff Papers, 1990, vol. 37, issue 4, 777-805

Abstract: Aggregate demand for M1 in the countries participating in the exchange rate mechanism (ERM) of the European Monetary System is shown to be a stable function of ERM-wide income, inflation, interest rates, and the ECU-dollar exchange rate. Particularly noteworthy is the rapid dynamic adjustment, in contrast to the implausibly slow adjustment implied by most single-country estimates. These results, if robust, suggest that, even at the present stage of economic and monetary integration, a European central bank might be able to implement monetary control more effectively than the individual national central banks.

Date: 1990
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