Advertisement

Policy Consequences of Money Demand (In)Stability: National vs. European

  • Carlo Monticelli
Part of the Financial and Monetary Policy Studies book series (FMPS, volume 31)

Abstract

This paper explores the implications of the (in)stability of national and area-wide money demand for the co-ordination of national monetary policies under an exchange rate agreement. If both national and area-wide money demands are stable and predictable, the symmetric and asymmetric schemes of monetary co-ordination are on an equal footing from the point of view of the stabilisation performance. If no money demand possesses the desirable properties, monetary targeting should be forsaken. If money demand in one country is significantly more stable than in the others and in the area as a whole, that country should be the anchor. If the area-wide money demand is the most stable, it is to the benefit of all countries to adopt the co-ordination scheme based on area-wide monetary control which, furthermore, automatically solves the issue of the symmetry of the system.

Keywords

Exchange Rate Monetary Policy Real Exchange Rate Money Supply Money Demand 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Arnold, I.J.M. (1994), “The Myth of a Stable European Money Demand”, Open Economic Review, 5, 249–259.CrossRefGoogle Scholar
  2. Barro, R. and D. Gordon (1983a), “Rules, Discretion and Reputation in a Model of Monetary Policy”, Journal of Monetary Economies, 12, 101–121.CrossRefGoogle Scholar
  3. Barro, R. and D. Gordon (1983b), “A Positive Theory of Monetary Policy in a Natural-Rate Model”, Journal of Political Economy, 91, 589–610.CrossRefGoogle Scholar
  4. Bekx, P. and G. Tullio (1989), “A Note on the European Monetary System, and the Determination of the DM-Dollar Exchange Rate”, Cahiers Economiques de Bruxelles, 123, 329–343.Google Scholar
  5. Bernanke, B. and F. Mishkin (1992), “Central Bank Behaviour and the Strategy of Monetary Policy: Observations from Six Industrialised Countries”, in O.J. Blanchard, and S. Fischer (eds.), NBER Macroeconomics Annual, Cambridge (MA), The MIT Press, 183–228.Google Scholar
  6. Bini Smaghi, L. and S. Vori (1991), “Currency Substitution, Monetary Stability and European Monetary Unification”, Rivista Internazionale di Scienze Sociali, 37, 45–68.Google Scholar
  7. Blackburn, K. and M. Christiansen (1989), “Monetary Policy and Policy Credibility: Theories and Evidence”, Journal of Economic Literature, 27, 1–45.Google Scholar
  8. Boyer, R.S. (1978), “Optimal Foreign Exchange Market Intervention”, Journal of Political Economy, 86, 1045–1055.CrossRefGoogle Scholar
  9. Brunner, K. (1980), “The Control of Monetary Aggregates, in Controlling Monetary Aggregates III”, Federal Reserve Bank of Boston, proceedings of a conference at Melvin Village, New Hampshire, October (1980), 1–65.Google Scholar
  10. Bryant, R.C. (1983), Controlling Money. The Federal Reserve and its Critics, Washington D.C., The Brookings Institution.Google Scholar
  11. Canzoneri, M.B., D.W. Henderson and K. Rogoff (1983), “The Information Content of the Interest Rate and the Price Level”, Quarterly Journal of Economics, 98, 545–566.CrossRefGoogle Scholar
  12. Courakis, A.S. (1981), “Monetary Targets: Conceptual Antecedents and Recent Policies in the US, UK and West Germany”, in A.S. Courakis (ed.), Inflation, Depression and Economic Policy in the West, London, Mansell, 259–357.Google Scholar
  13. Cukierman, A. (1992), Central Bank Strategy, Credibility and Independence, Cambridge (MA), MIT Press.Google Scholar
  14. Fase, M.M.G. (1993) “The Stability of the Demand for Money in the G7 and EC Countries: A Survey”, CEPS Working Papers, 81.Google Scholar
  15. Friedman, B.M. (1975), “Targets, Instruments and Indicators of Monetary Policy”, Journal of Monetary Economics, 1, 443–473.CrossRefGoogle Scholar
  16. Friedman, B.M. (1977), “The Inefficiency of Short-Run Monetary Targets for Monetary Policy”, Brookings Papers on Economic Activity, 2, 293–335.CrossRefGoogle Scholar
  17. Friedman, B.M. (1990) “Targets and Instruments of Monetary Policy”, in B.M. Friedman and F.H. Hahn (eds.) Handbook of Monetary Economics, Amsterdam, North-Holland, 1185–1230.Google Scholar
  18. Giavazzi F., S. Micossi and M. Miller (eds.) (1988), The European Monetary System, Cambridge, Cambridge University Press.Google Scholar
  19. Giovannini, A. (1991), “Money Demand and Monetary Control in an Integrated European Economy”, European Economy, special edition n. 1, chapter 5.Google Scholar
  20. Gray, J. A. (1976), “Wage Indexation: A Macroeconomic Approach”, Journal of Monetary Economics, 2, 221–235.CrossRefGoogle Scholar
  21. Gros, D. and T. Lane (1992), “Monetary Policy Integration within or without an Exchange Rate Agreement”, Open Economic Review, 3, 61–82.CrossRefGoogle Scholar
  22. Kenen, P.B. (1992), EMU after Maastricht, Washington D.C., Group of Thirty.Google Scholar
  23. Klein, M. (1991), “Bargaining for the Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model”, CEPR Discussion Papers, 553.Google Scholar
  24. Kremers, J.J.M. and T.D. Lane (1990), “Economic and Monetary Integration and the Aggregate Demand for Money in the EMS”, IMF Staff Papers, 37, 777–805.CrossRefGoogle Scholar
  25. Kremers, J.J.M. and T.D. Lane (1992), “The Implications of Cross-Border Monetary Aggregation”, IMF Working Papers, 71.Google Scholar
  26. LeRoy, S.F. and Waud, R.N. (1977), “Applications of the Kaiman Filter in Short-Run Monetary Control”, International Economic Review, 18, 195–207.CrossRefGoogle Scholar
  27. Monticelli, C. and L. Papi (1995), European Integration, Monetary Co-ordination and the Demand for Money, Oxford University Press, Oxford (forthcoming).Google Scholar
  28. Monticelli, C. and J. Viñals (1993), “European Monetary Policy in Stage Three: What Are the Issues?”, CEPR Occasional Papers, 12.Google Scholar
  29. Papademos, L. and F. Modigliani (1983), “Inflation, Financial and Fiscal Structure and the Monetary Mechanism”, European Economic Review, 21, 203–250.CrossRefGoogle Scholar
  30. Parkin, M. (1978), “A Comparison of Alternative Techniques of Monetary Control under Rational Expectations”, The Manchester School, 46, 252–287.CrossRefGoogle Scholar
  31. Pesaran, M.H., R.G. Pierse and M.S. Kumar (1989), “Econometric Analysis of Aggregation in the Context of Linear Prediction Models”, Econometrica, 57, 861–88.CrossRefGoogle Scholar
  32. Poole, W. (1970), “Optimal Choice of Monetary Instruments in a Simple Stochastic Macro Model”, Quarterly Journal of Economics, 84, 197–216.CrossRefGoogle Scholar
  33. Riet, A.G. van (1992), “European Integration and the Demand for Money in the EC”, De Nederlandsche Bank Quarterly Bulletin, 3, 33–43.Google Scholar
  34. Riet, A.G. van (1993) “Studies of EC Money Demand: Survey and Assessment”, De Nederlandsche Bank Quarterly Bulletin, 4, 63–75.Google Scholar
  35. Rogoff, K. (1985), “The Optimal Degree of Commitment to an Intermediate Monetary Target”, Quarterly Journal of Economics, 100, 1169–1190.CrossRefGoogle Scholar
  36. Russo, M. and G. Tullio (1988), “Monetary Policy Co-Ordination within the European Monetary System: Is there a Rule?”, in F. Giavazzi, S. Micossi, S. Micossi and M. Miller (eds.), The European Monetary System, Cambridge University Press, 292–355.CrossRefGoogle Scholar
  37. Sardelis, C. (1993), “Targeting a European Monetary Aggregate: Review and Current Issues, Commission of the European Communities”, Economic Papers, 102.Google Scholar
  38. Sargent, T.J. and N. Wallace (1975), “‘Rational’ Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule”, Journal of Political Economy, 83, 241–254.CrossRefGoogle Scholar
  39. Tinbergen, J. (1952), On the Theory of Economic Policy, Amsterdam, North-Holland.Google Scholar
  40. Turnovsky, S.J. (1984), “Exchange Market Intervention Under Alternative Forms of Exogenous Disturbances”, Journal of International Economics, 20, 279–297.CrossRefGoogle Scholar
  41. Woolley, J.T. (1987), “The Political Uses of Monetary Targets”, in D.R. Hodgman and G. Wood (eds.), Monetary and Exchange Policy, London, MacMillan Press, 69–98.Google Scholar

Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Carlo Monticelli
    • 1
  1. 1.Bank of ItalyItaly

Personalised recommendations