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The empirical properties of euro area M3, 1980-2017

Alexander Jung () and Hector Carcel ()

The Quarterly Review of Economics and Finance, 2020, vol. 77, issue C, 37-49

Abstract: This paper revisits the empirical properties of euro area M3 over the years 1980 to 2017. We estimate a CVAR model that includes wealth in addition to conventional drivers. Our empirical analysis identifies three long run cointegration relations - one of which can be interpreted as a stable money demand function. We detect that wealth effects coming from movements of stock prices and housing wealth had a positive effect on the long-run money demand for M3 and on output. Moreover, we confirm leading indicator properties of M3 excess liquidity for inflation, in particular at horizons between 1 and 2 years.

Keywords: Financial crisis; Euro area; Housing wealth; Stock prices; I(2) analysis; M3 properties (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.qref.2020.05.008

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