Monetary Asset Substitution in the Euro Area

I estimate time-varying elasticities of substitution between monetary assets for the Euro area using the semi-nonparametric method of Gallant (1981). The estimated elasticities suggest are consistent with the assumption of imperfect substitution between asset. Furthermore, the elasticities provide little evidence for the presence of structural breaks in money demand in the period 2001-2003 suggested by the ECB (2003)