Based on a literature review, this paper investigates the reasons why broad money demand has usually been found to be more stable in the euro area than in other large economies. The paper concludes that there are three main explanations for this fact. First, in some countries outside the euro...

We derive fundamental new theory for measuring monetary service flows aggregated over countries within the European Monetary Union (EMU). We develop three increasingly restrictive approaches: (1) the heterogeneous agents approach, (2) the multilateral representative agent approach, and (3) the...

This paper re-examines two data issues concerning euro area money demand: aggregation of national data and measurement of the own rate.The main purpose is to study if euro area money demand is subject to parameter non-constancies using formal tests rather than informal diagnostics. As a...

This paper analyses the information content of M1 for euro area real GDP since the beginning of the 1980s and reviews theoretical arguments on why real narrow money should help predict real GDP. We find that, unlike in the U.S., in the euro area, M1 has better and more robust forecasting...

Inflation expectations constitute a subject of particular contemporary interest to central banks, especially those pursuing a monetary policy based on a strategy of direct inflation targeting. Macroeconomic theory indicates that the transmission of monetary policy impulses and their impact on...

Traditional Taylor rules, which are estimated using a level specification linking the short-term interest rate to inflation and the output gap, are unstable when estimated on euro area data and forecast poorly out of sample. We present an alternative reaction function which takes the...