This paper examines the phenomenon of cross-currency substitution and the validity of monetary aggregation within the European Monetary System using non-parametric methods which exploit the relationship between intergroup substitution and separability. The separability property is tested using...

The high degree of economic integration has led to an increased degree of currency substitution in the EU countries, which could bring instability in national money demand functions while an EU-wide money demand function could be more stable. Currency substitution usually takes the form of cross...