Is the Demand for Euro Area M3 Stable?
64 Pages Posted: 26 Jan 2004
Date Written: September 2003
Abstract
This paper re-examines two data issues concerning euro area money demand: aggregation of national data and measurement of the own rate. The main purpose is to study if euro area money demand is subject to parameter non-constancies using formal tests rather than informal diagnostics. As a complement to inference based on asymptotics we perform small-scale bootstraps. The empirical evidence supports the existence of a stable long-run relationship between money and output and that the cointegration space is constant over time. However, the interest rate semi-elasticities of money demand are imprecisely estimated. Conditional on the cointegration relations the remaining parameters of the system appear to be constant. We also examine the relevance of stock prices for money demand and find that our measure does not matter for the long-run relations, but may be useful in forecasting exercises. Finally, the conclusions are robust for the aggregation method and the choice of sample.
Keywords: Aggregation, Bootstrap, Money Demand, Own Rate of Money, Parameter Constancy
JEL Classification: C22, C32, E41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Future of Monetary Aggregates in Monetary Policy Analysis
-
Global Monetary Policy Shocks in the G5: A Svar Approach
By Joao Miguel Sousa and Andrea Zaghini
-
Putting 'M' Back in Monetary Policy
By Eric M. Leeper and Jennifer E. Roush
-
Putting 'M' Back in Monetary Policy
By Eric M. Leeper and Jennifer E. Roush
-
A Money Demand System for Euro Area M3
By Claus Brand and Nuno Cassola