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The (in)stability of money demand in the euro area: lessons from a cross-country analysis

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  • Dieter Nautz

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  • Ulrike Rondorf

Abstract

The instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specific monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries.
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Suggested Citation

  • Dieter Nautz & Ulrike Rondorf, 2011. "The (in)stability of money demand in the euro area: lessons from a cross-country analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(4), pages 539-553, November.
  • Handle: RePEc:kap:empiri:v:38:y:2011:i:4:p:539-553
    DOI: 10.1007/s10663-010-9139-y
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    References listed on IDEAS

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    1. Dreger, Christian & Wolters, Jürgen, 2010. "Investigating M3 money demand in the euro area," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 111-122, February.
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    Citations

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    Cited by:

    1. Ahmad Baharumshah & Siew-Voon Soon, 2015. "Demand for broad money in Singapore: does wealth matter?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 557-573, July.
    2. Clemens Kool & Erik de Regt & Tom van Veen, 2013. "Money Overhang, Credit Overhang and Financial Imbalances in the Euro Area," CESifo Working Paper Series 4476, CESifo Group Munich.
    3. Lee, Chien Chiang & Chang, Chun Ping, 2012. "The Demand for Money in China: A Reassessment Using the Bounds Testing Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 74-94, March.
    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. repec:rjr:romjef:v::y:2017:i:4:p:84-96 is not listed on IDEAS
    6. Ralph Setzer & Guntram Wolff, 2013. "Money demand in the euro area: new insights from disaggregated data," International Economics and Economic Policy, Springer, vol. 10(2), pages 297-315, June.
    7. Vittorio Daniele & Pasquale Foresti & Oreste Napolitano, 2017. "The stability of money demand in the long-run: Italy 1861–2011," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 11(2), pages 217-244, May.
    8. J. Liu & C.J.M. Kool, 2017. "Monetary dynamics in the euro area : a disaggregate panel approach," Working Papers 17-14, Utrecht School of Economics.
    9. repec:eee:ecmode:v:68:y:2018:i:c:p:622-633 is not listed on IDEAS
    10. Ingrid Groessl & Artur Tarassow, 2015. "A Microfounded Model of Money Demand Under Uncertainty, and some Empirical Evidence," Macroeconomics and Finance Series 201504, Hamburg University, Department Wirtschaft und Politik, revised Jan 2018.
    11. BENDOB, Ali & SI MOHEMMED, Kamel, 2014. "La relation entre le taux de change parallèle et la demande de la monnaie Cas de l’Algérie durant 1980-2010: Une approche économétrique
      [The relationship between the parallel exchange rate and dema
      ," MPRA Paper 76085, University Library of Munich, Germany, revised 2014.
    12. J. Liu & C.J.M. Kool, 2017. "Money and Credit Overhang in the Euro Area," Working Papers 17-02, Utrecht School of Economics.
    13. 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

    Money demand; Cross-country analysis; Panel error correction model; Euro area; E41; E51; E52;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • 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

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