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The impact of COVID-19 infections on money demand: a cointegration analysis in the euro area

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  • Leonidas Zangelidis

Abstract

Nowadays, there is a structural change that affects the economy and its impact on money demand that needs to be addressed. The COVID-19 pandemic negatively (positively) affects the transaction motive (speculatively), while lock-down measures additionally reduce consumption activity. The purpose of this paper is to empirically estimate for the first time the impact of the COVID-19 recession on euro area (EA) money demand. It uses the money-in-utility and the concept of standard gamble to introduce a health factor in the model. Results show large fluctuations in 2020 to the long-run money demand relationship. New cases of infection in the EA have reduced money demanded from the public, suggesting a negative effect of consumption decrease due to fear or inconvenience. Precautionary effect is also evident when the effect of new cases in big EA countries is examined. The impact of lockdown measures had a negative effect on real GDP.

Suggested Citation

  • Leonidas Zangelidis, 2023. "The impact of COVID-19 infections on money demand: a cointegration analysis in the euro area," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 15(4), pages 478-501.
    • Handle: RePEc:ids:ijsuse:v:15:y:2023:i:4:p:478-501
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