Assessing excess liquidity in the euro area: the role of sectoral distribution of money

Giuseppe Ferrero, Andrea Nobili and Patrizia Passiglia

Applied Economics, 2011, vol. 43, issue 23, 3213-3230

Abstract: The strong and prolonged deviation of money growth from its reference value since 2001 has caused concern among policy-makers about the upside risks to price stability from monetary developments. In this article we provide evidence that these risks might have been smaller until 2005 than regularly assumed. Three basic findings support this view. First, a sectoral breakdown of money holdings shows that current excess liquidity conditions have been partly related to the acceleration of nonbank financial intermediaries' money demand, as well as to the accumulation of marketable instruments. Such increases are likely to be associated more to portfolio choices than to transaction motives. Second, evidence from balance sheet data on investment funds points to a general increase in the relative importance of this sector in the economy, rather than to a higher degree of liquidity of their asset positions, thus reflecting, to a large extent, a permanent change in the financial structure of the economy. Third, excess liquidity measures that exclude nonbank financial intermediaries' money holdings have more predictive power for future inflation at medium-term horizons than those that include them.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840903508353 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:43:y:2011:i:23:p:3213-3230

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840903508353

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().