Unconventional monetary policy and money demand

This paper investigates the usefulness of the money demand relationship in times of unconventional monetary policies by cointegration methods. Our empirical evidence shows the existence of stable long run money demand functions even in the period of interest rates near the zero bound, both for the US economy and the euro area. Evidence is based on standard monetary aggregates, i.e. MZM for the US and M3 for the euro area. The recent monetary policy shifts towards unconventional measures do not lead to a breakdown of money demand. The relationships do not show instabilities and are robust against the Lucas critique.