The long-run demand for currency and broad money in Italy, 1861–1980*

Abstract

This letter presents estimates of a stable long-run money demand function in Italy over the period 1861–1980. Results using the Johansen procedure of cointegration indicate a unique, long-run demand function for currency and the broad money supply. In each case, the real income and interest rate elasticities accord reasonably well with expectations from monetary theory in terms of size and sign and are in line with results reported in several studies for the United States and the United Kingdom. It appears that both currency and the money supply broadly defined are suitable aggregates with which to consider the long-run economic impacts of changes in monetary policy in Italy.