Money Demand in Europe: An Empirical Approach

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The EURO has now been in place for more than two years, but only the future will tell if the ECB can manage the EURO currency in the long-term. This book discusses the economic principals underlying the demand for money, and the possibilities to recover its properties by means of multivariate time series analysis. It applies the outcome to the whole EURO area as well as to France. While for the aggregate, a money demand function can be specified and be shown to have good forecasting properties, this fails in the French case. This book puts forth economic arguments to explain this. The presentation specifically outlines all means that have been used to cope with shifts in coefficients of the cointegration relations. A separate chapter examines unit root tests for time series with level shifts. This includes detection of break points, provision of test statistics, graphical evaluation of the empirical models and illustration of the procedure with a large set of international macroeconomic data.