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Monetary transmission and controllability of money in Europe: a structural vector error correction approach

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Author Info
P.J.G. Vlaar
H. Schuberth

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Abstract

In this paper, a structural vector error correction model (S-VECM) is estimated to investigate three essential prerequisites for a successful monetary targeting strategy: stability, controllability and predictability. First, multivariate cointegration techniques are used to identify two cointegration relations, that are identified as a long run money demand function and the Fisher effect for the long-term interest rate. Identification of the structural model is achieved by imposing contemporaneous and long-term restrictions. It is found that an interest rate shock hardly affects the nominal money stock, whereas the effects on excess money holdings and inflation are negative, but not significant.

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Publisher Info
Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 544.

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Date of creation: 1998
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Handle: RePEc:dnb:wormem:544

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Related research
Keywords: controllability; money demand; generalized common trends model;

Other versions of this item:

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. P.J.G. Vlaar, 1998. "On the asymptotic distribution of impulse response functions with long run restrictions," WO Research Memoranda (discontinued) 539, Netherlands Central Bank, Research Department.
    Other versions:
  2. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May. [Downloadable!] (restricted)
  3. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-64, December. [Downloadable!] (restricted)
  4. Henrik Hansen & Søren Johansen, 1992. "Recursive Estimation in Cointegrated VAR-Models," Discussion Papers 92-13, University of Copenhagen. Department of Economics.
  5. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
    Other versions:
  6. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January. [Downloadable!] (restricted)
  7. Lutz Kilian, 1998. "Confidence intervals for impulse responses under departures from normality," Econometric Reviews, Taylor and Francis Journals, vol. 17(1), pages 1-29. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jan J. J. Groen, 2004. "Corporate credit, stock price inflation and economic fluctuations," Applied Economics, Taylor and Francis Journals, vol. 36(18), pages 1995-2006, October. [Downloadable!] (restricted)
    Other versions:
  2. Gunter Coenen & Juan Luis Vega, 2000. "The Demand for M3 in the Euro Area," Econometric Society World Congress 2000 Contributed Papers 0976, Econometric Society. [Downloadable!]
    Other versions:
  3. Jan Gottschalk & Felipe Martinez Rico & Willem Van Zandweghe, 2000. "Money as an Indicator in the Euro Zone," Kiel Working Papers 984, Kiel Institute for the World Economy. [Downloadable!]
  4. Jan Gottschalk & Susanne Bröck, 2000. "Inflationsprognosen für den Euro-Raum: wie gut sind P*-Modelle?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 69(1), pages 69-89.
  5. Tor Jacobson & Per Jansson & Anders Vredin & Anders Warne, 2001. "Monetary policy analysis and inflation targeting in a small open economy: a VAR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(4), pages 487-520. [Downloadable!]
  6. Nuno Cassola & Claudio Morana, 2002. "Monetary policy and the stock market in the Euro area," Working Paper Series 119, European Central Bank. [Downloadable!]
  7. Kirstin Hubrich & Peter J. G. Vlaar, 2000. "Germany and the Euro Area: Differences in the Transmission Process of Monetary Policy," Econometric Society World Congress 2000 Contributed Papers 1802, Econometric Society, revised 08 Nov 2000. [Downloadable!]
    Other versions:
  8. Claus Brand & Nuno Cassola, 2000. "A money demand system for Euro area M3," Working Paper Series 39, European Central Bank. [Downloadable!]
  9. Claus Brand & Nuno Cassola, 2004. "A money demand system for euro area M3," Applied Economics, Taylor and Francis Journals, vol. 36(8), pages 817-838, May. [Downloadable!] (restricted)
  10. Jan Gottschalk & Stéphanie Stolz, 2001. "The Link of the Monetary Indicator to Future Inflation in the Euro Area — A Simulation Experiment," Kiel Working Papers 1057, Kiel Institute for the World Economy. [Downloadable!]
  11. H.M.M. Peeters, 2000. "Achieving Price Stability in the Euro Zone: Monetary or InflationTargeting?," DNB Staff Reports (discontinued) 43, Netherlands Central Bank. [Downloadable!]
  12. Roberto Golinelli & Sergio Pastorello, 2002. "Modelling the demand for M3 in the Euro area," European Journal of Finance, Taylor and Francis Journals, vol. 8(4), pages 371-401, December. [Downloadable!] (restricted)
  13. P.J.G. Vlaar, 2002. "Shocking the Eurozone," WO Research Memoranda (discontinued) 696, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  14. Annick Bruggeman & Marie Donnay, 2003. "A monthly monetary model with banking intermediation for the euro area," Working Paper Series 264, European Central Bank. [Downloadable!]
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