NEW EVIDENCE ON THE MOTIVES FOR HOLDING EURO AREA MONEY

Gabe de Bondt

Manchester School, 2010, vol. 78, issue 3, 259-278

Abstract: This study focuses on the role of equity and labour markets for holding euro area money. Equity affects money demand positively through wealth effects (financial transaction motive) and negatively via substitution effects from the expected return on equity (speculative motive). A precautionary motive is captured by the annual change in the unemployment rate. The empirical results show that equity and labour markets do matter for euro area money demand since 1983. This finding is robust across different proxies for the augmented motives and a shorter sample starting in 1994.

Date: 2010
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https://doi.org/10.1111/j.1467-9957.2009.02138.x

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