Economics at your fingertips  

Is there a structural break in equilibrium velocity in the euro area?

C. Bordes, Laurent Clerc () and V. Marimoutou

Working papers from Banque de France

Abstract: We investigate the stability of M3 income velocity in the euro area. We apply a set of breakpoint procedures to examine this issue and conclude that at least one structural change occurred around 2000-2001. We also find evidence of another structural break around 1992-1993. These two breaks seem to affect both the level and the slope of the income velocity of M3. We then estimate a model of equilibrium velocity that factors in the opportunity cost of M3, along the lines suggested by Orphanides and Porter (2000). Here again, we find some evidence of instability in equilibrium velocity. Given the importance of the assumption of stable velocity trends for both the derivation of the reference value and the two-pillar strategy of the Eurosystem, these findings question the relevance of some excess liquidity indicators directly computed from the reference value and may call for some adjustments in the conduct of the ECB's monetary policy.

Keywords: M3 velocity; Breakpoint tests; ECB. (search for similar items in EconPapers)
JEL-codes: E30 E50 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link) ... g-paper_165_2007.pdf (application/pdf)

Related works:
Working Paper: Is there a structural break in equilibrium velocity in the euro area? (2007) Downloads
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:

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().

Page updated 2020-01-21
Handle: RePEc:bfr:banfra:165