On the stability of the long-run money demand in Greece

Abstract

The paper examines the existence and the stability of the long-run demand for narrow money balances (M1) in Greece over the deregulated period 1986:Q1–1995:Q4 using time series techniques. Cointegration tests have revealed the existence of a systematic long-run relationship between real money balances, real income, and the interest rate. An interesting aspect of the stability analysis is the evidence that the long-run money demand equation is stable over the sample period, implying that the narrow money aggregate could have been used as an intermediate target of monetary policy in Greece.