Eurozone money demand: time series and dynamic panel results
AbstractThe effectiveness of the important role for money in the monetary policy of the European Central Bank (ECB) is usually assessed by looking at time series estimates of the eurozone money demand equation. This implicitly calls for a choice of aggregation method to construct data series long enough to obtain meaningful econometric results. This study discusses different aggregation methods and finds that variable weight growth rate aggregation has the nicest properties. The results based on the hereby constructed series confirm the effectiveness of the ECB´s monetary policy. Next this study tries to avoid the issue of aggregation by adopting a (nonstationary) dynamic panel method that uses the data series for each of the eurozone countries by itself. This shows that differences in the money demand equation across the eurozone countries are likely to exist. Not being able to quantify these differences makes it difficult to give specific implications for the ECB´s monetary policy. The found differences could however influence the time series estimates and through these have implications for the ECB´s monetary policy.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 750.
Length: 67 pages
Date of creation: Nov 2003
Date of revision:
money demand; eurozone; aggregation; time series; dynamic panel estimation;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-CBA-2004-08-16 (Central Banking)
- NEP-EEC-2004-08-16 (European Economics)
- NEP-MON-2004-08-16 (Monetary Economics)
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- Bosker, E.M., 2006. "On the aggregation of eurozone data," Economics Letters, Elsevier, vol. 90(2), pages 260-265, February.
- Arnold, Ivo J.M. & Roelands, Sebastian, 2010. "The demand for euros," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 674-684, June.
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