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Is the euro area M3 abandoning us?

Author

Listed:
  • Nuno Alves
  • Carlos Robalo Marques
  • João Sousa

Abstract

This paper reassesses the role of the M3 aggregate for monetary policy purposes in the euro area. Using data until 2006Q4 it is shown that the M3 aggregate ceased to display the empirical properties that supported its prominent role in the ECB’s monetary policy strategy. On the one hand, when the most recent data are used in the analysis there is strong evidence of cointegration breakdown in the M3 money demand models as well as in the "two-pillar Phillips curves" with filtered data. On the other hand, the leading indicator properties of M3 for inflation in the area have also deteriorated markedly in the most recent years. This is supported by evidence both in the time and frequency domains.

Suggested Citation

  • Nuno Alves & Carlos Robalo Marques & João Sousa, 2007. "Is the euro area M3 abandoning us?," Working Papers w200720, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w200720
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    File URL: https://www.bportugal.pt/sites/default/files/anexos/papers/wp200720.pdf
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    References listed on IDEAS

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    5. Calza, Alessandro & Sousa, João, 2003. "Why has broad money demand been more stable in the euro area than in other economies? A literature review," Working Paper Series 261, European Central Bank.
    6. Daniel Levy, 2002. "Cointegration in Frequency Domain," Emory Economics 0209, Department of Economics, Emory University (Atlanta).
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    Cited by:

    1. 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.
    2. Matteo Farn'e & Angela Montanari, 2018. "Exploring the relationship between money stock and GDP in the Euro Area via a bootstrap test for Granger-causality in the frequency domain," Papers 1803.00374, arXiv.org.
    3. António Rua, 2012. "Money Growth and Inflation in the Euro Area: A Time-Frequency View," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(6), pages 875-885, December.
    4. Matteo Barigozzi & Antonio Conti, 2010. "On the Sources of Euro Area Money Demand Stability. A Time-Varying Cointegration Analysis," Working Papers ECARES ECARES 2010-022, ULB -- Universite Libre de Bruxelles.
    5. Ludomir Slahor & Daniela Majercakova & Alexandra Mittelman, 2015. "An Empirical Study of the Correlation between the Monetary Aggregates and the Price Level in Euro Area in the Years 2004 - 2013," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 3(1), pages 38-50.
    6. Andrea Nobili, 2009. "Composite indicators for monetary analysis," Temi di discussione (Economic working papers) 713, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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