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Explaining the money demand of non-financial corporations in the Euro area: A macro and a micro view


  • Martinez-Carrascal, Carmen
  • von Landesberger, Julian


This paper analyses euro area non-financial corporations (NFC) money demand, both from a macro and a microeconomic point of view. At a macro level, money holdings are modelled as a function of real gross added value, the price level, the long-term interest rate on bank lending to non-financial corporations, the own rate of return on M3 and the real capital stock of the NFC sector. The results indicate that NFCs’ money holdings adjust quickly when deviations from their long-run level are registered, and that the large increase observed recently in NFCs’ money holdings has been driven by changes in their fundamentals and hence they stand in line with their long-run equilibrium level. The disaggregated analysis also shows that cash holdings are linked to balance-sheet ratios (such as non-liquid short term assets, tangible assets or indebtedness) and other variables such as the firm’ cash flow, its volatility or the size of the firm, which cannot be taken into account in the macro analysis. Likewise, results indicate that the main drivers of the increase in NFC cash holdings in the last years have been cyclical factors, captured by gross-added value and the cash-flow respectively. Variations in the opportunity cost of holding money, have also contributed to explain M3 developments but more modestly than at the end of the nineties, when its increase contributed negatively to cash accumulation. JEL Classification: E41, C23, C32, D21

Suggested Citation

  • Martinez-Carrascal, Carmen & von Landesberger, Julian, 2010. "Explaining the money demand of non-financial corporations in the Euro area: A macro and a micro view," Working Paper Series 1257, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20101257

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    References listed on IDEAS

    1. Andrew Brigden & Paul Mizen, 1999. "Money, credit and investment in UK corporate sector," Bank of England working papers 100, Bank of England.
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    Cited by:

    1. Franz Seitz & Julian von Landesberger, 2014. "Household Money Holdings in the Euro Area: An Explorative Investigation," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(2), pages 83-115, November.
    2. Franz Seitz & Julian von Landesberger, 2012. "Household Money Demand: The Euro Area Case," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(III), pages 409-438, September.

    More about this item


    cointegrated VARs; Money demand; panel estimation;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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