A monetary vector error correction model of the Euro area and implications for monetary policy

Oliver Holtemöller

Empirical Economics, 2004, vol. 29, issue 3, 553-574

Abstract: In this paper, a vector error correction model for Euro area money, prices, output, long-term interest rate and short-term interest rate with three identified cointegration relations is specified. It is shown that Euro area money and prices can be considered as variables that are integrated of order two or I(2), that is, they have to be differenced twice to become stationary. Accordingly, the relation between money, prices and other macroeconomic variables is analyzed in an econometric framework which is suited for the analysis of I(2)-variables. Monetary policy implications are derived from the estimated system. Copyright Springer-Verlag 2004

Keywords: Double unit roots; I(2) vector error correction model; cointegration; Euro area money demand; monetary policy; C32; E41; E52 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (26)

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DOI: 10.1007/s00181-004-0198-4

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