Money demand in the euro area: new insights from disaggregated data

Setzer, Ralph and Wolff, Guntram B. (2009): Money demand in the euro area: new insights from disaggregated data.

Abstract

Conventional money demand specifications in the euro area have become unstable since 2001. We specify a money demand equation in deviations of individual euro area Member States variables from the euro area average and show that the income elasticity as well as the interest rate semi-elasticity remain stable. The corresponding deep parameters of the utility function have not changed. Aggregate money demand instability does therefore not result from altered standard factors determining the preference for holding money. Instead, other factors determine the aggregate monetary overhang. Since monetary developments cannot easily be explained by changing preferences, they should be closely monitored and might be a sign of imbalances.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money demand, M3, national contributions, euro area
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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