A Cointegration Analysis of the Relatonship between Bank Reserves, Deposits and Loans: The Case of Italy, 1965-1987

Posted: 10 Jan 2005

See all articles by Marzio Galeotti

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (ESP); Fondazione Eni Enrico Mattei (FEEM); GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks

Valentina Corradi

Queen Mary, University of London

Riccardo Rovelli

Alma Mater Studiorum - Università di Bologna; IZA Institute of Labor Economics

Abstract

In this paper, we investigate the relationship between bank reserves, deposits and loans using a time series approach. The empirical results show that free reserves cointegrate with both deposits and loans and the causal nexus runs from deposits (in the short run) to reserves and from deposits and loans (in the long run) to free reserves. This reflects the fact that the Bank of Italy has never followed a policy of unconditional money stock targeting with strict monetary base control. We also find that in the short run deposits are causally prior to loans; this reflects the fact that Italian banks have mainly pursued an asset management policy. Over the full sample deposits and loans are not cointegrated; this may be due to the introduction of the ceiling on bank loans.

Suggested Citation

Galeotti, Marzio and Corradi, Valentina and Rovelli, Riccardo, A Cointegration Analysis of the Relatonship between Bank Reserves, Deposits and Loans: The Case of Italy, 1965-1987. Available at SSRN: https://ssrn.com/abstract=633961

Marzio Galeotti (Contact Author)

University of Milan - Department of Environmental Science and Policy (ESP) ( email )

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Fondazione Eni Enrico Mattei (FEEM) ( email )

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HOME PAGE: http://www.feem.it

GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks ( email )

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Milan, 20123
Italy

HOME PAGE: http://https://www.green.unibocconi.eu

Valentina Corradi

Queen Mary, University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Riccardo Rovelli

Alma Mater Studiorum - Università di Bologna ( email )

Bologna
Italy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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