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Economic and Monetary Integration and the Aggregate Demand for Money in the EMS

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  • International Monetary Fund

Abstract

This study shows that the aggregate demand for M1 in the group of countries participating in the Exchange Rate Mechanism (ERM) of the European Monetary System can be expressed as a stable function of ERM-wide income, inflation, interest rates, and the exchange rate of the European Currency Unit (ECU) vis-à-vis the U.S. dollar. A notable feature of the model is the rapid elimination of monetary disequilibria, in contrast with most single-country estimates which tend to find implausibly slow adjustment. These results are suggestive: if robust, they would indicate that, even at the present stage of economic and monetary integration, a European central bank could, in principle, implement monetary control more effectively than the individual national central banks.

Suggested Citation

  • International Monetary Fund, 1990. "Economic and Monetary Integration and the Aggregate Demand for Money in the EMS," IMF Working Papers 1990/023, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1990/023
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Läufer, Nikolaus K. A., 1997. "Issues in stability of European money demand: Adjustment speed versus error variance," Discussion Papers, Series II 356, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    6. Mr. Zenon Kontolemis, 2002. "Money Demand in the Euro Area: Where Do We Stand (Today)?," IMF Working Papers 2002/185, International Monetary Fund.
    7. Alberto Giovannini & Bart Turtelboom, 1992. "Currency Substitution," NBER Working Papers 4232, National Bureau of Economic Research, Inc.
    8. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, vol. 3(3), pages 323-343, October.

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