DP719 | Monetary Union, Money Demand and Money Supply: A Review of the German Monetary Union

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27/10/1992

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Abstract

We present an empirical analysis of German money demand, money supply and monetary policy after German monetary union in 1990. Empirical models for velocity and forecast models for the money multiplier are estimated. Stability analysis reveals that structural stability of the demand for broad money after monetary union must be rejected; stability of the demand for narrow money can be accepted. East German portfolio adjustment with regard to the structure of monetary portfolios occurred quite rapidly. The increase in monetary control uncertainty caused by these adjustments did not, however, impede monetary targeting with reasonable precision.