The demand for money in Greece: Further empirical results and policy implications

In this paper we investigate the determinants and the stability of the demand for broad and narrow definitions of money in Greece. The demand for M2 has not been previously studied. The findings of the empirical work suggest that the demand for M1 is unstable. For M2 the results presented are not sufficiently unambiguous to provide a basis for a policy prescription in favour of the adoption of a monetary target. In terms of anti-inflation policy efficiency, it is argued that a potentially better policy choice for Greece would be to join the exchange rate mechanism of the European Monetary System.