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Does liquidity matter for money demand in euro area countries?

Author

Listed:
  • Alexander C. Jung

    () (European Central Bank)

Abstract

This paper estimates demand functions for the four main components of M3 for the euro area. Its aim is to examine whether the ECB's massive liquidity provision to euro area banks during the financial crisis is an important driver of money demand explaining regional differences across euro area countries. The approach of the paper is to apply panel analysis to the national contributions of the components of M3. Overall, the paper finds that central bank liquidity had a small, positive effect on the (long-run) demand for the components of M3 in the twelve euro area countries included. The liquidity effect is subject to considerable cross-country dispersion.

Suggested Citation

  • Alexander C. Jung, 2015. "Does liquidity matter for money demand in euro area countries?," Economics Bulletin, AccessEcon, vol. 35(2), pages 1383-1391.
  • Handle: RePEc:ebl:ecbull:eb-14-00463
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I2-P139.pdf
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    References listed on IDEAS

    as
    1. De Hoyos, Rafael E. & Sarafidis, Vasilis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 1-15.
    2. Dreger, Christian & Wolters, Jürgen, 2010. "M3 Money Demand and Excess Liquidity in the Euro Area," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 459-472.
    3. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
    4. Alessandro Calza & Alexander Jung & Livio Stracca, 2000. "An econometric analysis of the main components of M3 in the Euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(4), pages 680-701, December.
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    Citations

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    Cited by:

    1. Jung, Alexander, 2016. "A portfolio demand approach for broad money in the euro area," Working Paper Series 1929, European Central Bank.

    More about this item

    Keywords

    Panel regressions; money demand; components of M3; euro area; liquidity.;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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