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AbstractThe instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specic monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries.
JEL classication: E41, E51, E52Keywords: Money demand, cross-country analysis, panel error correction model, euro area * We thank Jörg Breitung and Christian Oermanns for helpful comments and suggestions.
SummaryWe analyze some potential adverse macroeconomic side-effects of aid transfers: Real appreciation of the recipient′s currency may impair the aggregate output via crowding-out productive export sectors, the so-called Dutch Disease.We use simplified balance sheets to elucidate the effects of four typical combinations of the following actions: The government may or may not spend the value of the aid transfer for nontradable goods. The central bank may or may not sell the respective reserves.If the loss of competitiveness induced by the appreciation is over-compensated by the improved productivity induced by the use of the transfer, then there is no need to worry about the Dutch Disease.
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