Money demand in Europe : evidence from the past

The conditions under which European monetary policy is likely to be conducted are investigated by means of multi-variate time series modelling using aggregated data of all eleven European Monetary Union member states. A cointegration analysis identifies two stable long-run relationships, one of which can be interpreted as a money demand function and a second one as a long term real interest rate (Fisher parity). Particular emphasis is given both to the data sources and their aggregation, by providing a transparent account of our calculation procedure, which is not yet common in the existing literature.