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Unconventional Monetary Policy and Money Demand

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  • Christian Dreger
  • Jürgen Wolters

Abstract

This paper investigates the usefulness of the money demand relationship in times of unconventional monetary policies by cointegration methods. In contrast to the bulk of the literature, evidence in favour of a stable long run money demand function is presented both for the US and the euro area. Results are based on standard monetary aggregates, i.e. MZM for the US and M3 in case of the euro area. The recent monetary policy shifts towards unconventional measures did not introduce instability in the relationships. The results suggest that money balances are still useful instruments to conduct monetary policy especially in periods where the nominal interest rates are at the zero lower bounds.

Suggested Citation

  • Christian Dreger & Jürgen Wolters, 2014. "Unconventional Monetary Policy and Money Demand," Discussion Papers of DIW Berlin 1382, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1382
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    References listed on IDEAS

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    Cited by:

    1. Lahura, Erick, 2017. "Monetary Aggregates and Monetary Policy in Peru," Working Papers 2017-003, Banco Central de Reserva del Perú.
    2. César Carrera & Jairo Flores, 2017. "Modelling and forecasting money demand: divide and conquer," Working Papers 2017-91, Peruvian Economic Association.
    3. repec:sae:globus:v:18:y:2017:i:4:p:811-824 is not listed on IDEAS
    4. PELINESCU, Elena & SIMIONESCU, Mihaela, 2014. "Modelling And Predicting The Real Money Demand In Romania," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 1(1), pages 117-124.
    5. Christian Dreger & Dieter Gerdesmeier & Barbara Roffia, 2016. "Re-vitalizing Money Demand in the Euro Area: Still Valid at the Zero Lower Bound," Discussion Papers of DIW Berlin 1606, DIW Berlin, German Institute for Economic Research.
    6. Christian Dreger & Malte Rieth & David Pothier, 2015. "Is Globalization Reducing the Ability of Central Banks to Control Inflation? In-Depth Analysis," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 106, number pbk106.
    7. 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.
    8. Jung, Alexander, 2016. "A portfolio demand approach for broad money in the euro area," Working Paper Series 1929, European Central Bank.
    9. Muhammad Ahad, 2017. "Financial Development and Money Demand Function: Cointegration, Causality and Variance Decomposition Analysis for Pakistan," Global Business Review, International Management Institute, vol. 18(4), pages 811-824, August.

    More about this item

    Keywords

    Unconventional monetary policy; money demand; stability;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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