Kiel Working Papers, Kiel Institute for World Economics
No 1179:
Is European Money Demand Still Stable?
Kai Carstensen
Abstract: This paper analyzes the question whether money demand in
the Euro area has undergone a structural change in the recent time when M3
money growth has considerably overshot the reference value set by the
European Central Bank (ECB). It is found that conventional specifications
of money demand have in fact become unstable while specifications which are
augmented with equity yields and volatility remain stable. Using such an
augmented specification, it turns out that the excessive M3 growth rates
can largely be attributed to the stock market downswing and do not put a
measurable threat to price stability.
32 pages, August 2003
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