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Is European Money Demand Still Stable?

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  • Carstensen, Kai

Abstract

This paper analyzes the question whether money demand in the Euro area has undergone a structural change in recent time when M3 money growth has considerably overshot the reference value set by the European Central Bank (ECB). It is found that conventional specifications of money demand have in fact become unstable while specifications which are augmented with equity returns and volatility remain stable. Using such an augmented specification, it turns out that the excessive M3 growth rates can largely be attributed to the stock market downswing and do not put a measurable threat to price stability.

Suggested Citation

  • Carstensen, Kai, 2004. "Is European Money Demand Still Stable?," Kiel Working Papers 1179, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1179
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    Citations

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    Cited by:

    1. Ralf Brüggemann & Helmut Lütkepohl, 2006. "A small monetary system for the euro area based on German data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 683-702, September.
    2. Arnold, Ivo J.M. & Roelands, Sebastian, 2010. "The demand for euros," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 674-684, June.
    3. Kaufmann, Sylvia & Kugler, Peter, 2005. "Expected Money Growth, Markov Trends and the Instability of Money Demand in the Euro Area," Working papers 2005/07, Faculty of Business and Economics - University of Basel.
    4. Carlos Robalo Marques & João Sousa & Nuno Alves, 2006. "Some Issues Concerning the Use of M3 for Monetary Policy Analysis in the Euro Area," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    5. repec:onb:oenbwp:y::i:131:b:1 is not listed on IDEAS
    6. Beyer, Andreas, 2009. "A Stable Model for Euro Area Money Demand: Revisiting the Role of Wealth," Working Paper Series 1111, European Central Bank.
    7. Christian Dreger & Jürgen Wolters, 2006. "Die Liquidität in der Eurozone ist nicht zu hoch," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 73(25), pages 373-377.
    8. Sambulo Malumisa, 2015. "Structural Breaks, Stability and Demand for Money in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 7(5), pages 79-90.
    9. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur & Yiangou, Jonathan, 2019. "A tale of two decades: the ECB’s monetary policy at 20," Working Paper Series 2346, European Central Bank.
    10. Nuno Alves, 2007. "Is the euro area M3 abandoning us?," Working Papers w200720, Banco de Portugal, Economics and Research Department.
    11. Jung, Alexander, 2016. "A portfolio demand approach for broad money in the euro area," Working Paper Series 1929, European Central Bank.
    12. Christian Dreger & Jürgen Wolters, 2006. "Investigating M3 Money Demand in the Euro Area: New Evidence Based on Standard Models," Discussion Papers of DIW Berlin 561, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Money demand; EMU; excess liquidity;
    All these keywords.

    JEL classification:

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

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