Stability of the money demand function in Germany

Abstract

This paper empirically analyses the stability of the money demand function in Germany. Important results may be summarized as follows. There was a stable relationship between money supply and real economic activity, and the money demand function was stable prior to German re-unification. The stability of money demand tends to be rejected, however, when the sample period is extended to cover German re-unification. When the stability of parameters was checked to confirm the occurrence of a structural change, it is evident that such a change did occur around 1990.