John Paleologos, Ph.D, Economics, University of Piraeus, 80, Karaoli & Dimitriou Str., Piraeus, 18534, Greece, Grigorios Bitzis, Msc., Economics, University of Pireus, 24, Theatrou, Piraeus, 18534, Greece, and Christos Papazoglou, Ph.D, European and International Studies, Panteion University, 131, Sigrou Avenue, Athens, 11745, Greece.
In this paper we investigate empirically, the impact of the euro on the money demand and currency substitution in selected industrial countries. The industrial countries considered include: United Kingdom, Norway, Sweden, Denmark and Japan. The analysis is using quarterly data covering the 1995Q1-2008Q1 period. We use a multivariate vector autoregressive analysis (MVAR analysis) to estimate the individual country money demand functions. The results from MVAR analysis reveal significant degree of monetary interdependence and show the increasing role of euro in affecting domestic currency money demand in the particular countries. Recent developments in the financial markets and in the oil prices seem to have further enhanced the role of euro. Overall, the results verify the importance of euro as an international currency.