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

Ralph Setzer and Guntram Wolff

No 373, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

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 remains 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.

Keywords: Money demand; euro area; deep parameters of money demand function; panel data (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Money demand in the euro area: new insights from disaggregated data (2013)
Working Paper: Money demand in the euro area: new insights from disaggregated data (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0373

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