This paper discusses the relevance of cross-border deposits (CBDs) for the stability of the relation between monetary aggregates and nominal GDP in the five largest EC countries. The importance of the issue derives from two facts. Firstly, CBDs have recently increased sharply in many EC countries, casting doubts on the adequacy of existing monetary aggregates, which exclude them. Secondly, current monetary policy coordination within the EC emphasizes the role of quantitative monetary indicators. The analysis is developed in terms of the "information content" of alternative money definitions (including or excluding selected subsets of CBDs), derived from a multi-country simultaneous system of money demand equations. We show that in the most recent period traditional broad money aggregates are dominated by alternative money definitions that include CBDs, such as those based on the residency of the holder or on the currency of denomination.
An earlier version of this paper was presented at the conference on "Monetary Policy in Stage Two of EMU", jointly organized by the Centre for Economic Policy Research (CEPR) and the Paolo Baffi Centre of Bocconi University and held in Milan on September 27-28, 1991.
