THE STABILITY OF GERMAN MONEY DEMAND - TESTS OF THE COINTEGRATION RELATION

In this study, two money demand functions are specified in single equation error correction as well as triangular error correction form involving real M1 (M3), real GNP, a short- and a long-term interest rate. Using various tests, it is shown that there may be a cointegration relation even after the German Monetary Union (GMU) was established in 1990. But the long-run coefficients of GNP and the interest rate probably have a structural break in 1973, when the Bundesbank changed its monetary regime, and in 1990, when the GMU was formed. The tests support weak exogeneity of real GNP and the interest rate.