Stephen G.Hall (Leicester University and NIESR) George Hondroyiannis (Bank of Greece) P.A.V.B. Swamy (U.S. Bureau of Labor Statistics) George S. Tavlas () (Bank of Greece a)
Additional information is available for the following
registered author(s):
As part of its monetary policy strategy, the European Central Bank has formulated a reference value for M3 growth. A pre-requisite for the use of a reference value for M3 growth is the existence of a stable demand function for that aggregate. However, a large empirical literature has emerged showing that, beginning in 2001, essentially all euro area M3 demand functions have exhibited instability. This paper considers euroarea money demand in the context of the portfolio-balance framework. Our basic premise is that there is a stable demand-for-money function but that the models that have been used until now to estimate euro area money-demand are not well-specified because they do not include a measure of wealth. Using two empirical methodologies - - a co-integrated vector equilibrium correction (VEC) approach and a time-varying coefficient (TVC) approach - - we find that a demand-for-money function that includes wealth is stable. The upshot of our findings is that M3 behaviour continues to provide useful information about medium-term developments on inflation.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Bank of Greece in its series Working Papers with number
61.
Find related papers by JEL classification: C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
M. Hashem Pesaran & Yongcheol Shin, 2002.
"Long-Run Structural Modelling,"
Econometric Reviews,
Taylor and Francis Journals, vol. 21(1), pages 49-87.
[Downloadable!] (restricted)
Other versions: