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Eu-Wide Money And Currency Substitution

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Author Info
Miguel Lebre de Freitas

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Abstract

This paper re-addresses the issue of international currency substitution, estimating a money demand equation for the euro-area. The testing procedure accounts for two alternative theories of money demand—the liquidity services model and the portfolio-balance model. The evidence found is favorable to the CS hypothesis in general and to the liquidity services model of money demand in particular. This result, somehow expected, challenges some recent literature on Euro-Area money demand that has been exclusively devoted to the closed economy portfolio-balance model.

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Publisher Info
Article provided by Icfai Press in its journal The Icfai University Journal of Monetary Economics.

Volume (Year): IV (2006)
Issue (Month): 4 (November)
Pages: 48-63
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Handle: RePEc:icf:icfjmo:v:04:y:2006:i:4:p:48-63

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  1. McKinnon, Ronald I, 1982. "Currency Substitution and Instability in the World Dollar Standard," American Economic Review, American Economic Association, vol. 72(3), pages 320-33, June. [Downloadable!] (restricted)
  2. Miles, Marc A, 1978. "Currency Substitution, Flexible Exchange Rates, and Monetary Independence," American Economic Review, American Economic Association, vol. 68(3), pages 428-36, June.
  3. Beyer, Andreas & Doornik, Jurgen A & Hendry, David F, 2001. "Constructing Historical Euro-Zone Data," Economic Journal, Royal Economic Society, vol. 111(469), pages F102-21, February. [Downloadable!] (restricted)
    Other versions:
  4. Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July. [Downloadable!] (restricted)
  5. Gabriel Fagan & JÊrÆme Henry, 1998. "Long run money demand in the EU: Evidence for area-wide aggregates," Empirical Economics, Springer, vol. 23(3), pages 483-506. [Downloadable!] (restricted)
  6. Mundell, Robert, 2000. "Currency Areas, Volatility and Intervention," Journal of Policy Modeling, Elsevier, vol. 22(3), pages 281-299, May. [Downloadable!] (restricted)
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  7. Boyer, Russell S. & Kingston, Geoffrey H., 1987. "Currency substitution under finance constraints," Journal of International Money and Finance, Elsevier, vol. 6(3), pages 235-250, September. [Downloadable!] (restricted)
  8. Tamim Bayoumi & Peter B. Kenen, 1992. "Using an EC-Wide Monetary Aggregate in Stage Two of EMU," IMF Working Papers 92/56, International Monetary Fund.
  9. Girton, Lance & Roper, Don E, 1981. "Theory and Implications of Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(1), pages 12-30, February. [Downloadable!] (restricted)
  10. Angeloni, Ignazio & Cottarelli, Carlo & Levy, Aviram, 1994. "Cross-border deposits, aggregation, and money demand in the transition to EMU," Journal of Policy Modeling, Elsevier, vol. 16(1), pages 27-54, February. [Downloadable!] (restricted)
  11. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May. [Downloadable!] (restricted)
  12. Smith, Constance E, 1995. "Substitution, Income, and Intertemporal Effects in Currency-Substitution Models," Review of International Economics, Blackwell Publishing, vol. 3(1), pages 53-59, February.
  13. Arnold, Ivo J. M. & de Vries, Casper G., 2000. "Endogeneity in European money demand," European Journal of Political Economy, Elsevier, vol. 16(4), pages 587-609, November. [Downloadable!] (restricted)
  14. Branson, William H. & Henderson, Dale W., 1985. "The specification and influence of asset markets," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 15, pages 749-805 Elsevier. [Downloadable!] (restricted)
  15. Mizen, Paul & Pentecost, Eric J, 1994. "Evaluating the Empirical Evidence for Currency Substitution: A Case Study of the Demand for Sterling in Europe," Economic Journal, Royal Economic Society, vol. 104(426), pages 1057-69, September. [Downloadable!] (restricted)
  16. Monticelli, Carlo & Strauss-Kahn, Marc-Olivier, 1993. "European Integration and the Demand for Broad Money," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 61(4), pages 345-66, December.
  17. McKinnon, Ronald, 2000. "Mundell, the Euro, and the World Dollar Standard," Journal of Policy Modeling, Elsevier, vol. 22(3), pages 311-324, May. [Downloadable!] (restricted)
  18. Carlo C. A. Winder & Martin M. G. Fase, 1998. "Wealth and the demand for money in the European union," Empirical Economics, Springer, vol. 23(3), pages 507-524. [Downloadable!] (restricted)
  19. Joines, Douglas H., 1985. "International currency substitution and the income velocity of money," Journal of International Money and Finance, Elsevier, vol. 4(3), pages 303-316, September. [Downloadable!] (restricted)
  20. Günter Coenen & Juan-Luis Vega, 1999. "The demand for M3 in the euro area," Working Paper Series 6, European Central Bank. [Downloadable!]
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  21. Melvin, Michael, 1985. "Currency Substitution and Western European Monetary Unification," Economica, London School of Economics and Political Science, vol. 52(205), pages 79-91, February. [Downloadable!] (restricted)
  22. Thomas, Lee R, 1985. "Portfolio Theory and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 347-57, August. [Downloadable!] (restricted)
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