This paper develops a constant, data-coherent, error correction model for broad
money demand (M3) in Greece. This model contributes to a better understanding
of the effects of monetary policy in Greece and of the portfolio consequences
of financial innovation in general. The broad monetary aggregate M3 was
targeted until recently, and current monetary policy still uses such aggregates
as guidelines, yet analysis of this aggregate has been dormant for over a
In spite of large fluctuations in the inflation rate, introduction of new financial instruments, and liberalization of the financial system, the estimated model is remarkably stable. The dynamics of money demand are important, with price and income elasticities being much smaller in the short run than in the long run.
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Last update: July 19, 2001