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On money and output in the euro area: Is money redundant?

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Abstract

The relationship between money and output in the euro area is tested in the context of a two-equation model. An interesting aspect of the empirical analysis is the evidence that the real M3 has a correctly signed and statistically significant impact on business cycle fluctuations, given the real interest rate and foreign output. This finding supports the argument made by proponents of monetarism that the effects of monetary policy actions on the real economy are not fully captured by the short-term real interest rate.

Suggested Citation

  • Costas Karfakis, 2011. "On money and output in the euro area: Is money redundant?," Discussion Paper Series 2011_01, Department of Economics, University of Macedonia, revised Jan 2011.
  • Handle: RePEc:mcd:mcddps:2011_01
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    References listed on IDEAS

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    1. Jean-Marie Dufour, 2003. "Identification, weak instruments, and statistical inference in econometrics," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 767-808, November.
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    8. Javier Andrés & J. David López-Salido & Javier Vallés, 2006. "Money in an Estimated Business Cycle Model of the Euro Area," Economic Journal, Royal Economic Society, vol. 116(511), pages 457-477, April.
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    Keywords

    Output gap; real money; real interest rate; simultaneous equations methods.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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