521 - On the determination of the DM-dollar exchange rate: Bekx and Tullio's 1989-study revisited
- Wetenschappelijke publicatie
Date 6 October 1997
In this report the author evaluates the results of Bekx and Tullio, who were the first to analyse the European area-wide money demand. Rather surprisingly, their paper is a standard reference in the literature on European money demand although their main focus is on the DM-$ exchange rate within a monetaristic model of exchange rate determination. Their research led to the conclusion that the foundation of the EMS had the consequence that the DM-$ exchange rate is more appropriately explained by European than by German fundamentals. Moreover, they find that currency substitution has a significant impact on the demand for money. The results of the current study indicate that the empirical findings of Bekx and Tullio cannot be confirmed. Neither does the author find a significant impact on currency substitution on the demand for money nor that the DM-$ exchange rate is driven by European rather than German fundamentals.