THE STABILITY OF MONEY DEMAND IN GERMANY AND IN THE EMS - IMPACT OF GERMAN UNIFICATION

The Stability of Narrow Money Demand in Germany and Aggregate Money Demand in the EMS: Impact of German Unification. - This paper shows that the German monetary union not only had an impact on the stability of the narrow money demand in Germany but also on the stability of the aggregate demand for money in two larger European currency areas, consisting of three and seven EMS countries. However, the impact was only of a temporary nature. The empirical results show that the close link between real money, output, and the interest rate still exists. In a European Monetary Union, narrow money thus remains a potential candidate as an indicator and/or intermediate target for the European Central Bank.