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A monthly monetary model with banking intermediation for the euro area

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Author Info
Annick Bruggeman () (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.)
Marie Donnay () (Center for Economic Studies, Catholic University of Leuven, Naamsestraat 69, B-3000 Leuven, Belgium.)
Abstract

This monthly monetary model for the euro area is gradually constructed from its two constituting components: a money demand and a loan demand model which both include the relation between the respective retail bank rates and the short-term market interest rate. Eventually, the encompassing monetary model allows for interactions between money and loans induced by the intermediation role of the banking sector. Estimating the encompassing model over the period January 1981 - September 2001 results in a money demand equation which corroborates the existing evidence. To stabilise the loan demand equation, however, an extra variable capturing the mergers and acquisitions wave of 1999-2000 is needed. Furthermore, the model rejects the frequently used assumption of complete separability in the pricing of loans and deposits and provides some evidence for the existence of a bank lending channel. Finally, the estimation of the Structural-VECM highlights very rich dynamics in the system. JEL Classification: C32; E41; E43; E50; G21.

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Paper provided by European Central Bank in its series Working Paper Series with number 264.

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Length: 79 pages
Date of creation: Sep 2003
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Handle: RePEc:ecb:ecbwps:20030264

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Keywords: Cointegration structural VECM money demand loan demand banking intermediation.

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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. Gianluca Di Lorenzo & Giuseppe Marotta, 2006. "Multiple breaks in lending rate pass-through A cross country study for the euro area," Heterogeneity and monetary policy 0602, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
  2. Ralph Süppel, 2003. "Comparing economic dynamics in the EU and CEE accession countries," Working Paper Series 267, European Central Bank. [Downloadable!]
  3. Giuseppe Marotta, 2006. "Structural breaks in the interest rate pass-through and the euro. A cross-country study in the euro area and the UK," Heterogeneity and monetary policy 0612, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
  4. Gianluca Di Lorenzo & Giuseppe Marotta, 2005. "A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through," Heterogeneity and monetary policy 0503, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
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