In search for stability: An empirical appraisal of the demand for money in the G7 and EC countries

Summary The demand for money has been at the centre of monetary econometrics. The policy debate has focused on the stability issue. To investigate this the present paper presents an overview of 400 estimated demand-for-money equations in the EC countries and G7 member states taken from the literature. The results of this survey suggest, firstly, serious doubts on the stability of the demand for money and, secondly, a remarkable evolution in econometric methodology in an attempt to improve the statistical evidence. Thirdly and important from a policy perspective, the analysis of the reported standard errors of the equations shows that among the large European countries Germany has the most stable money demand.     

The demand for money in the Netherlands revisited

Summary This article presents an analysis of demand for money in The Netherlands, both at the aggregate level and the sectoral level. Special attention is devoted to the distinction between short and long run demand. Deviations of the long-run relationships are modelled by means of the error correction mechanism. The elasticities for aggregate demand are consistent with the findings for the money demand by the household and business sectors and correspond reasonably well with those derived from other studies. The estimated equations describe the rise in theM1- andM2-ratio in the 1980s in a satisfactory way, although forM2 from 1987 onwards there is a discrepancy between actual and fitted values. The disaggregated analysis shows that the behaviour of the business sector seems to be responsible for this.The authors are indebted to Professor S.K. Kuipers for his comments on an earlier draft.