Testing for the stability of money demand in Italy: has the Euro influenced the monetary transmission mechanism?

Abstract

Stability of money demand is a crucial issue for the efficacy of monetary policy. This is particularly true in the presence of significant exogenous shocks to the monetary system. By implementing the most recent econometric testing procedures, this article intends to investigate the consistency of the stability of money demand in Italy, one of the larger European Monetary Union (EMU) countries, before and after the EMU. Among others, the objective is, indeed, to ascertain the effect of a change in the currency regime on the monetary aggregates and to provide a valid empirical model which is a viable tool for policy performance.

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