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Money demand in the euro area: new insights from disaggregated data

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Author Info
Setzer, Ralph
Wolff, Guntram B.

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Abstract

Conventional money demand specifications in the euro area have become unstable since 2001. We specify a money demand equation in deviations of individual euro area Member States variables from the euro area average and show that the income elasticity as well as the interest rate semi-elasticity remain stable. The corresponding deep parameters of the utility function have not changed. Aggregate money demand instability does therefore not result from altered standard factors determining the preference for holding money. Instead, other factors determine the aggregate monetary overhang. Since monetary developments cannot easily be explained by changing preferences, they should be closely monitored and might be a sign of imbalances.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17483.

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Date of creation: 05 Mar 2009
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Handle: RePEc:pra:mprapa:17483

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Related research
Keywords: Money demand; M3; national contributions; euro area;

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Find related papers by JEL classification:
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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    Other versions:
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    Other versions:
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