On the Monetary Transmission Mechanism in Europe: Results from a Cointegration Analysis of a Money Demand System.

This paper presents an analysis of a money demand system for the euro area. The objective is to investigate some aspects of the monetary transmission mechanism. Of particular interest is the interest rate channel, which asserts that monetary policy works by affecting the long real rate. The evidence suggests that the long bond rate is mainly determined by inflation expectations and that the long real rate appears to have been beyond the influence of monetary policy makers. In addition real money effects are considered. At least in the short-run excess money has positive significant effects on output and inflation.