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Why has broad money demand been more stable in the Euro area than in other economies? A literature review

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Abstract

Based on a literature review, this paper investigates the reasons why broad money demand has usually been found to be more stable in the euro area than in other large economies. The paper concludes that there are three main explanations for this fact. First, in some countries outside the euro area the sources of instabilities in money demand were country-specific. Second, financial innovation appears to have had a weaker impact on money demand in the euro area than in other economies. A third explanation is that there are gains in terms of stability in aggregating the money demand of the individual euro area countries. JEL Classification: E41; C22; C32.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 261.

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Length: 29 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:ecb:ecbwps:20030261

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Related research

Keywords: Money demand; financial innovation; aggregation; euro area.;

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Cited by:
  1. Sousa, Ricardo M., 2010. "Housing wealth, financial wealth, money demand and policy rule: Evidence from the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 88-105, March.
  2. Nuno Alves & Carlos Robalo Marques & João Sousa, 2007. "Is the euro area M3 abandoning us?," Working Papers w200720, Banco de Portugal, Economics and Research Department.
  3. Haider, Adnan & Jan, Asad & Hyder, Kalim, 2012. "On the (IR) Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View," MPRA Paper 43422, University Library of Munich, Germany.
  4. Mierzejewski, Fernando, 2008. "Essays on liquidity-preference in markets with borrowing restrictions.," Open Access publications from Katholieke Universiteit Leuven urn:hdl:1979/2006, Katholieke Universiteit Leuven.
  5. Mierzejewski, Fernando, 2006. "Liquidity preference as rational behaviour under uncertainty," MPRA Paper 2771, University Library of Munich, Germany.
  6. Ralph Setzer & Guntram B. Wolff, 2009. "Money demand in the euro area: new insights from disaggregated data," European Economy - Economic Papers 373, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. Mierzejewski, Fernando, 2008. "The optimal liquidity principle with restricted borrowing," MPRA Paper 12549, University Library of Munich, Germany.
  8. Guido Ascari & Neil Rankin, 2004. "Perpetual youth and endogenous labour supply: a problem and a possible solution," Working Paper Series 346, European Central Bank.
  9. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
  10. Paresh Narayan & Seema Narayan & Vinod Mishra, 2009. "Estimating money demand functions for South Asian countries," Empirical Economics, Springer, vol. 36(3), pages 685-696, June.
  11. Sahar Bahmani, 2010. "Openness and the speed of adjustment in the money market," Journal of Economics and Finance, Springer, vol. 34(2), pages 218-227, April.
  12. Otmar Issing, 2004. "Geldpolitik für den Euroraum," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 5(4), pages 381-404, November.
  13. Kai Carstensen & Jan Hagen & Oliver Hossfeld & Abelardo Salazar Neaves, 2009. "Money Demand Stability And Inflation Prediction In The Four Largest Emu Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(1), pages 73-93, 02.
  14. Arnold, Ivo J.M. & Roelands, Sebastian, 2010. "The demand for euros," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 674-684, June.
  15. Michael Graff, 2008. "The Quantity Theory of Money in Historical Perspective," KOF Working papers 08-196, KOF Swiss Economic Institute, ETH Zurich.

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