Long-run money demand in the new EU Member States with exchange rate effects

Hans-Eggert Reimers, Barbara Roffia and Christian Dreger

No 628, Working Paper Series from European Central Bank

Abstract: Generally speaking, money demand models represent a natural benchmark against which monetary developments can be assessed. In particular, the existence of a well-specified and stable relationship between money and prices can be perceived as a prerequisite for the use of monetary aggregates in the conduct of monetary policy. In this study a money demand analysis in the new Member States of the European Union (EU) is conducted using panel cointegration methods. A well-behaved long run money demand relationship can be identified only if the exchange rate as part of the opportunity cost is included. In the long-run cointegrating vector the income elasticity exceeds unity. Moreover, over the whole sample period the exchange rates vis-à-vis the US dollar turn out to be significant and a more appropriate variable in the money demand than the euro exchange rate. The present analysis is of importance for the new EU Member States as they are expected to join in the future years the euro area, where money is deemed to be highly relevant JEL Classification: C23, E41, E52

Keywords: exchange rate; money demand; new EU member states; panel cointegration (search for similar items in EconPapers)
Date: 2006-05
Note: 155132
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Journal Article: Long-Run Money Demand in the New EU Member States with Exchange Rate Effects (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2006628

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