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The paper reviews the stability of long-run money demand in the euro area in the light of recent revisions to M3 data. The analysis confirms the existence of a stable long-run money demand, although the estimated equation implies a smaller equilibrium M3 growth than the European Central Bank's reference value of 4½ percent. The stability of long-run money demand does not imply that the market is always in equilibrium. Indeed, it is argued that periods of disequilibrium can be long and adjustment slow. The paper shows that the difference between the low estimated equilibrium growth rate and the actual growth rate for M3 can be explained by a velocity shock, identified here as the sharp fall in equity prices in the last two years. These characteristics of the money market-summarized in the events of the last two years-would call for an alternative approach in the communication of monetary policy developments, essentially putting less emphasis on month-to-month developments in M3.

Finance: General --- Inflation --- Macroeconomics --- Money and Monetary Policy --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Demand for Money --- Price Level --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Personal Income, Wealth, and Their Distributions --- Monetary economics --- Finance --- Demand for money --- Asset prices --- Money markets --- Personal income --- Money --- Prices --- Financial markets --- Price stabilization --- Money market --- Income --- Germany

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In the context of the U.K. government’s EMU entry condition of cyclical convergence, this paper (i) provides further evidence suggesting that historically the U.K.’s business cycle has been more volatile than, and relatively independent of, the cycles in the euro-area countries; and (ii) identifies, using a small VAR model, a relatively significant role for monetary policy in explaining these differences. A simulation exercise suggests that if the U.K. interest rates had been more closely aligned with those in the euro area in the 1990s (as they would be if the United Kingdom were to join EMU), output growth might have been less volatile and more correlated with that in the euro area, but inflationary pressures might have persisted.

Foreign Exchange --- Inflation --- Macroeconomics --- Production and Operations Management --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- International Economic Order and Integration --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Price Level --- Deflation --- Macroeconomics: Production --- Economic growth --- Currency --- Foreign exchange --- Business cycles --- Exchange rates --- Real effective exchange rates --- Output gap --- Prices --- Production --- Economic theory --- United Kingdom

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Union europeenne --- Conditions economiques --- Union europeenne --- Conditions economiques

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This study identifies differences in the monetary policy transmission mechanism across the countries in the euro area. It is argued that part of the differences in the response of economic activity to monetary policy during the pre-EMU period, found in other studies, reflected differences in monetary policy reaction functions, rather than different transmission mechanisms. In light of this, the paper constructs an empirical model on the basis of common reaction functions. The results confirm that even when a common monetary policy is implemented, its effects on economic activity are likely to differ across EMU countries. The paper also constructs an aggregate measure of the effect of monetary policy on prices and output. Finally, the paper examines the relative strength of the credit, exchange rate, and interest rate channels of monetary transmission in EMU countries.

Foreign Exchange --- Inflation --- Macroeconomics --- Money and Monetary Policy --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- International Economic Order and Integration --- Monetary Policy --- Price Level --- Deflation --- Currency --- Foreign exchange --- Monetary economics --- Exchange rates --- Credit --- Monetary transmission mechanism --- Consumer price indexes --- Money --- Monetary policy --- Prices --- Price indexes --- France

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