Testing for Long Run Money Demand Functions in Greece Using Cointegration Techniques

Abstract

Long run money demand functions for M1 and M3 are tested by means of the cointegration methodology developed by Johansen (1988). The results support the existence of an economically meaningful cointegrating vector for both measures of monetary aggregates. The rejection of a unit price elasticity of money demand suggests that money is not neutral in Greece. The significance of interest rate elasticity of M3 implies that the aggregate is subject to control through policy-induced interest rate movements and thus can serve as a useful monetary target.