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A Stable Model for Euro Area Money Demand: Revisiting the Role of Wealth

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Abstract

In this paper we present an empirically stable money demand model for Euro area M3. We show that housing wealth is an important explanatory variable of long-run money demand that captures the trending behaviour of M3 velocity, in particular its shift in the first half of this decade. We show that the current financial crisis has no impact on the stability of our money demand model. JEL Classification: C22, C32, E41.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1111.

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Length: 64 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:ecb:ecbwps:20091111

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Related research

Keywords: Money Demand; Parameter Constancy; Wealth; Cointegration; Vector Error Correction Model.;

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Cited by:
  1. Setzer, Ralph & van den Noord, Paul & Wolff, Guntram B., 2011. "Heterogeneity in money holdings across euro area countries: The role of housing," European Journal of Political Economy, Elsevier, vol. 27(4), pages 764-780.
  2. De Santis, Roberto A & Favero, Carlo A. & Roffia, Barbara, 2012. "Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability," CEPR Discussion Papers 8957, C.E.P.R. Discussion Papers.
  3. Matteo Barigozzi & Antonio Conti, 2010. "On the Sources of Euro Area Money Demand Stability. A Time-Varying Cointegration Analysis," Working Papers ECARES ECARES 2010-022, ULB -- Universite Libre de Bruxelles.
  4. 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.
  5. Dieter Nautz & Ulrike Rondorf, 2011. "The (in)stability of money demand in the euro area: lessons from a cross-country analysis," Empirica, Springer, vol. 38(4), pages 539-553, November.
  6. Franz Seitz & Julian von Landesberger, 2010. "Household money holdings in the euro area: An explorative investigation," Working Paper Series 1238, European Central Bank.
  7. Czudaj, Robert, 2011. "P-star in times of crisis - Forecasting inflation for the euro area," Economic Systems, Elsevier, vol. 35(3), pages 390-407, September.

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