Co-integration analysis and
error-correction modelling show that a stable and predictable aggregate demand
for broad money holds for the group of countries participating in the Exchange
Rate Mechanism (ERM) of the European Monetary System. This result seems robust
to different econometric techniques, samples and methods of conversion of
national variables into ecus. Furthermore, ERM-wide equations compare
favourably with national equations and with the previous estimates of area-wide
equations for narrow money. These findings suggest that an area-wide broad
monetary aggregate can play a useful role in the co-ordination of monetary
policy at the European level.
The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.