The long-run stability of the demand for money: Italy 1861–1996

Abstract

This paper examines the stability of the demand for money in Italy using a newly extended data set for the period 1861–1996. We examine how the evolution of the financial system in Italy and policy shifts have affected the behavior of the long-run demand for money, and present tests of structural stability. We find the demand for broad money to be remarkably stable, despite periods of considerable economic turbulence. In addition, we present evidence on the monetary transmission mechanism. Our results shed light on attempts to model long-run relationships in other countries such as the UK and the US.