We revisit the usefulness of long-run money demand equations for the European Central Bank. We first conduct a model evaluation exercise by means of a recent time-varying cointegration test. A stable relation for euro area M3 is not rejected by data only when accounting for both a speculative...

This paper analyses currency in circulation in the euro area since the beginning of the 1980s. After a literature review we present some stylised facts on currency holdings in the euro area countries as well as at an aggregate euro area level. The next chapter develops a theoretical model, which...

A remarkable development seen in recent years is the pronounced decline in euro area M1 velocity vis-a-vis a moderate decline in short-term interest rates, which represent the most natural opportunity cost for M1. This paper endeavous to estimate a demand function for euro area M1, in particular...

The creation of European Monetary Union (EMU) poses a number of difficult problems for the European Central Bank (ECB). One of the major problems is related to the uncertainty about economic relationships within the euro area. The monetary strategy of the ECB is based on two pillars, one is the...

This paper builds a quarterly Divisia monetary aggregate for the euro area using area-wide data over the sample period from 1980 to 2000, finding two main results. First, it is found that the demand for this monetary aggregate has been well behaved and relatively stable over the last two...

Output gap estimates at the current edge are subject to severe revisions. This study analyzes whether monetary aggregates can be used to improve the reliability of early output gap estimates as proposed by several theoretical models. A real-time experiment shows that real M1 can improve output...