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The myth of a stable European money demand

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  • Ivo Arnold

Abstract

Recent empirical studies suggest that an aggregate EC-wide money demand function is more stable than national money demand functions in the European Community. If true, this would facilitate monetary policy after Economic and Monetary Union. The evidence presented in this paper, however, shows that in general there is no relationship between the size of a currency area and the stability of its demand for money. I conclude that the stability of European money demand is a statistical artifact and has nothing to say about money demand stability in a future larger European currency area. Copyright Kluwer Academic Publishers 1994

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  • Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
    • Handle: RePEc:kap:openec:v:5:y:1994:i:3:p:249-259
    DOI: 10.1007/BF01000911
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    References listed on IDEAS

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    1. James M. Boughton, 1991. "Long-Run Money Demand in Large Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 1-32, March.
    2. Fair, Ray C, 1987. "International Evidence on the Demand for Money," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 473-480, August.
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    4. Ignazio Angeloni & Aviram Levy & Mr. Carlo Cottarelli, 1991. "Cross-Border Deposits and Monetary Aggregates in the Transition to EMU," IMF Working Papers 1991/114, International Monetary Fund.
    5. Jacob A. Frenkel & Morris Goldstein, 1991. "Monetary Policy in an Emerging European Economic and Monetary Union: Key Issues," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 356-373, June.
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    7. Ivo J. M. Arnold, 1992. "The Derivation of the Liquidity Ratio in the EMS: Comment on Kremers and Lane," IMF Staff Papers, Palgrave Macmillan, vol. 39(1), pages 195-202, March.
    8. David Barr, 1992. "The Demand for Money in Europe: Comment on Kremers and Lane," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 718-729, September.
    9. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
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    Cited by:

    1. Frank Butter & Simon Dijken, 1997. "The Information Contents of Aggregated Money Demand in the EMU," Open Economies Review, Springer, vol. 8(3), pages 233-244, July.
    2. Bahmani-Oskooee Mohsen & Shin Sungwon, 2002. "Stability of the Demand for Money in Korea," International Economic Journal, Taylor & Francis Journals, vol. 16(2), pages 85-95.
    3. J.M. Groeneveld & K.G. Koedijk & C.J.M. Kool, 1997. "Money, prices and the transition to EMU," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(203), pages 481-504.
    4. Giacomo Sbrana, 2008. "On the use of area-wide models in the Euro-zone," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 17(4), pages 499-518, October.
    5. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2001. "Money demand in the euro area: do national differences matter?," Temi di discussione (Economic working papers) 405, Bank of Italy, Economic Research and International Relations Area.
    6. Bernd Hayo, 2000. "The demand for money in Austria," Empirical Economics, Springer, vol. 25(4), pages 581-603.
    7. Miguel Lebre de Freitas, 2006. "Currency Substitution and Money Demand in Euroland," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(3), pages 275-287, September.
    8. Funke, Michael, 2001. "Money demand in Euroland," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 701-713, October.
    9. Elke Hahn & Christian Müller, 2000. "Money Demand in Europe: Evidence from the Past," Discussion Papers of DIW Berlin 204, DIW Berlin, German Institute for Economic Research.
    10. Roy Thurik, 2014. "Entrepreneurship and the business cycle," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-90, October.
    11. Calza, Alessandro & Sousa, João, 2003. "Why has broad money demand been more stable in the euro area than in other economies? A literature review," Working Paper Series 261, European Central Bank.
    12. Mike Artis & Andreas Beyer, 2004. "Issues in Money Demand: The Case of Europe," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 717-736, November.
    13. Ivo J. M. Arnold, 2022. "Monetary overhang in times of covid: evidence from the euro area," Applied Economics, Taylor & Francis Journals, vol. 54(35), pages 4030-4042, July.
    14. Müller, Christian & Hahn, Elke, 2000. "Money demand in Europe: Evidence from the past," SFB 373 Discussion Papers 2000,35, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    15. Bernd Hayo, 1999. "Estimating A European Demand For Money," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(3), pages 221-244, August.
    16. Dieter Nautz & Ulrike Rondorf, 2011. "The (in)stability of money demand in the euro area: lessons from a cross-country analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(4), pages 539-553, November.
    17. Miguel Lebre de Freitas, 2006. "Eu-Wide Money And Currency Substitution," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 48-63, November.
    18. Lang, Dimut, 1999. "Die Geldmenge und ihre bilanziellen Gegenposten: Ein Vergleich zwischen wichtigen Ländern der Europäischen Währungsunion," Discussion Paper Series 1: Economic Studies 1999,01, Deutsche Bundesbank.
    19. Giancarlo Corsetti & Paolo Pesenti, 1999. "Stability, Asymmetry, and Discontinuity: The Launch of European Monetary Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 295-372.
    20. Philip Arestis & Malcolm Sawyer, 2001. "Will the Euro Bring Economic Crisis to Europe?," Palgrave Macmillan Books, in: Philip Arestis & Michelle Baddeley & John McCombie (ed.), What Global Economic Crisis?, chapter 5, pages 78-103, Palgrave Macmillan.
    21. Browne, F.X. & Fagan, G. & Henry, J., 1997. "Money Demand in EU Countries : A Survey," Papers 7, European Monetary Institute.
    22. Bruggeman, Annick & Donati, Paola & Warne, Anders, 2003. "Is the demand for euro area M3 stable?," Working Paper Series 255, European Central Bank.
    23. Arnold, Ivo J.M. & Roelands, Sebastian, 2010. "The demand for euros," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 674-684, June.

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    money demand; EMU; aggregation;
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