A Monthly Monetary Model with Banking Intermediation for the Euro Area
79 Pages Posted: 26 Jan 2004
Date Written: September 2003
Abstract
This monthly monetary model for the euro area is gradually constructed from its two constituting components: a money demand and a loan demand model which both include the relation between the respective retail bank rates and the short-term market interest rate. Eventually, the encompassing monetary model allows for interactions between money and loans induced by the intermediation role of the banking sector.
Estimating the encompassing model over the period January 1981 - September 2001 results in a money demand equation which corroborates the existing evidence. To stabilise the loan demand equation, however, an extra variable capturing the mergers and acquisitions wave of 1999-2000 is needed. Furthermore, the model rejects the frequently used assumption of complete separability in the pricing of loans and deposits and provides some evidence for the existence of a bank lending channel. Finally, the estimation of the Structural-VECM highlights very rich dynamics in the system.
Keywords: Cointegration, Structural VECM, Money demand, Loan demand, Banking intermediation
JEL Classification: C32, E41, E43, E50, G21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A New Framework for Analyzing and Managing Macrofinancial Risks of an Economy
By Zvi Bodie, Dale F. Gray, ...
-
New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability
By Dale F. Gray, Zvi Bodie, ...
-
Measuring and Analyzing Sovereign Risk with Contingent Claims
By Michael Gapen, Dale F. Gray, ...
-
A New Framework for Analyzing and Managing Macrofinancial Risks of an Economy
By Zvi Bodie, Dale F. Gray, ...
-
Transparency, Risk Management and International Financial Fragility
By Mario Draghi, Francesco Giavazzi, ...
-
Transparency, Risk Management and International Financial Fragility
By Mario Draghi, Francesco Giavazzi, ...
-
By Michael Gapen, Cheng Hoon Lim, ...
-
Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment
-
Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment