This paper explores the economic properties
of several EC-wide monetary aggregates which are extended to include different measures
of cross-border holdings (CBHs). The EC-wide aggregate obtained by simply
adding national definitions of broad money is used as a benchmark, since
econometric analysis confirms previous findings that it can play a useful role
in the coordination of monetary policy at the European level. Cointegration
analysis and error-correction modelling in fact show that the demand for it is
stable and predictable, with a statistical performance which compares most
favourably with national equations. And Granger-causality tests, conducted in
both bivariate and multivariate settings for a wide range of specifications,
indicate that it has predictive value for both nominal and real Community
income. Aggregates including CBHs perform differently according to the definition.
"Very broad" measures (which include EC-residents' CBHs kept outside
the EC or non-ECresidents' CBHs kept within the EC but denominated in non-EC
currencies) are poorly linked with EC-wide income, since they do not pass
cointegration tests and do not Granger-cause Community income. In contrast,
extended definitions "focused on the EC" (which hinge on the
inclusion of CBHs denominated in EC-currencies andlor kept within the EC) are
shown to possess the economic properties necessary for money measures to be
useful for monetary policy and economic analysis. Although such extended
aggregates do not yet outperform the traditional measure of EC-wide broad
money, the results suggest that they may shortly become an increasingly
important tool for monetary analysis at the EC level.