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Money demand stability and currency substitution in six European countries (1980-1992)

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  • Renato Filosa

Abstract

This paper discusses the main potential sources of instability of money demand in Europe originating from institutional changes in the financial system and currency substitution. Money demand equations might appear unstable if the dynamic specifications are too rigid. This can largely be overcome by using error-correction models. Once this model is applied, money demand in the countries reviewed is reasonably stable and economically well behaved. Estimations show that currency substitution is an important feature of financial behaviour in Europe. It supports the proposition that an EC-wide money stock would possess stability properties superior to individual countries' money demand.

Suggested Citation

  • Renato Filosa, 1995. "Money demand stability and currency substitution in six European countries (1980-1992)," BIS Working Papers 30, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:30
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    References listed on IDEAS

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    Cited by:

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    2. Mr. Subramanian S Sriram, 1999. "Survey of Literature on Demand for Money: Theoretical and Empirical Work with Special Reference to Error-Correction Models," IMF Working Papers 1999/064, International Monetary Fund.
    3. 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.
    4. ALBULESCU, Claudiu Tiberiu & PÉPIN, Dominique & MILLER, Stephen M., 2019. "The micro-foundations of an open economy money demand: An application to central and eastern European countries," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 33-45.
    5. Claudiu Tiberiu Albulescu & Dominique Pépin & Stephen Miller, 2016. "The micro-foundations of an open economy money demand: An application to the Central and Eastern European countries," Working Papers hal-01348842, HAL.
    6. Buch, Claudia M., 1996. "Russian monetary policy: Assessing the track record," Kiel Working Papers 786, Kiel Institute for the World Economy (IfW Kiel).
    7. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," Borradores de Economia 2969, Banco de la Republica.
    8. Mr. Joaquim Vieira Ferreira Levy & Mr. Alessandro Calza & Mr. Dieter Gerdesmeier, 2001. "Euro Area Money Demand: Measuring the Opportunity Costs Appropriately," IMF Working Papers 2001/179, International Monetary Fund.

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