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Author | : Zenon Kontolemis G. |
Publisher | : International Monetary Fund |
Total Pages | : 36 |
Release | : 2002-11 |
Genre | : Business & Economics |
ISBN | : |
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The paper reviews the stability of long-run money demand in the euro area in the light of recent revisions to M3 data. The analysis confirms the existence of a stable long-run money demand, although the estimated equation implies a smaller equilibrium M3 growth than the European Central Bank's reference value of 41⁄2 percent. The stability of long-run money demand does not imply that the market is always in equilibrium. Indeed, it is argued that periods of disequilibrium can be long and adjustment slow. The paper shows that the difference between the low estimated equilibrium growth rate and the actual growth rate for M3 can be explained by a velocity shock, identified here as the sharp fall in equity prices in the last two years. These characteristics of the money market-summarized in the events of the last two years-would call for an alternative approach in the communication of monetary policy developments, essentially putting less emphasis on month-to-month developments in M3.
Author | : Ralph Setzer |
Publisher | : |
Total Pages | : 24 |
Release | : 2009 |
Genre | : Data processing |
ISBN | : 9789279111846 |
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"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."--Document home p.
Author | : Helmut Lütkepohl |
Publisher | : Springer Science & Business Media |
Total Pages | : 266 |
Release | : 2013-04-17 |
Genre | : Business & Economics |
ISBN | : 3662125390 |
Download Money Demand in Europe Book in PDF, ePub and Kindle
In 1999 a number of member states of the European Union will adopt a common currency. This change in the monetary system requires that a Eur opean Central Bank is set up and a common monetary policy is pursued. There is general agreement among those countries which are likely to join the common currency that price level stability has to be the ultimate objec tive of monetary po1icy. It is an open issue, however, what kind of policy is best suited for that purpose. The alternative strategies under discussion are a direct inflation targeting, an intermediate monetary targeting or a mixture of both. For these policy strategies a stable money demand relation is of cen tral importance. Therefore a workshop on Money Demand in Europe was organized at the Humboldt University in Berlin on October 10/11, 1997. This research conference brought together academic and central bank econo mists and econometricians predominantly from Europe to discuss issues on specification, estimation and, in particular, stability of money demand rela tions both in a single equation and in a systems framework. In this volume revised versions of the papers presented and discussed at the workshop are collected. The volume thereby gives an overview of money demand analysis in Europe on the eve of the introduction of the Euro in some European countries. It contributes to the discussion on a suitable monetary policy for the new European Central Bank.
Author | : Christian Müller |
Publisher | : Springer Science & Business Media |
Total Pages | : 248 |
Release | : 2012-12-06 |
Genre | : Business & Economics |
ISBN | : 3642574009 |
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The first of January 1999 marked the beginning of a macroeconomic experi ment without precedent in modern history. For the first time eleven European countries agreed to abolish their local currencies in favour of a single one, the Euro. Not surprisingly, the necessary preparatory process has been accompa nied by an intensive discussion about the best way to manage the new Euro currency properly. To spur on that discourse was the principal motivation for this thesis. The introductory chapter attempts to bridge economic and econometric views on money demand analysis. It should help to motivate estimation proce dures and to standardize interpretation techniques, hopefully initiating further discussion in that direction. It intends to make the following chapters more accessible. In this thesis I approach the general subject in two principle ways. In chapter 3 I consider technical issues dealing with time series with shifts in the mean. Two years ago, Helmut Liitkepohl and Pentti Saikkonen asked me to join in on a related project which became the cornerstone of this chapter. I have very much appreciated the highly instructive collaboration with both these scholars.
Author | : Luca Dedola |
Publisher | : |
Total Pages | : 64 |
Release | : 2001 |
Genre | : Euro |
ISBN | : |
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Author | : Mr.Alessandro Calza |
Publisher | : INTERNATIONAL MONETARY FUND |
Total Pages | : 0 |
Release | : 2001-11-01 |
Genre | : Business & Economics |
ISBN | : 9781451859034 |
Download Euro Area Money Demand Book in PDF, ePub and Kindle
The existence of a well-specified and stable relationship between money and prices has long been perceived as a prerequisite for the use of monetary aggregates in the conduct of monetary policy. This paper contributes to the ongoing discussion about the stability of euro area money demand by constructing an own rate of return on euro area M3 and by analyzing its implications in a standard money demand system. Over the sample period, one cointegrating vector relating real M3, real GDP and the spread between the short-term interest rate and the own rate of M3 can be identified and interpreted as a long-run euro area money demand equation. A dynamic money demand system is subsequently estimated. Standard diagnostics stability tests and out-of-sample forecasts confirm the good statistical performance of the model.
Author | : Matteo Barigozzi |
Publisher | : |
Total Pages | : 33 |
Release | : 2013 |
Genre | : |
ISBN | : |
Download On the Stability of Euro Area Money Demand and Its Implications for Monetary Policy Book in PDF, ePub and Kindle
We revisit the usefulness of long-run money demand equations for the European Central Bank. We first conduct a model evaluation exercise by means of a recent time-varying cointegration test. A stable relation for euro area M3 is not rejected by data only when accounting for both a speculative motive, represented by international financial markets, and a precautionary motive, proxied by changes in the unemployment rate. Second, relying on this finding, we propose and estimate a novel time-invariant specification for money demand which allows us (i ) to build a leading indicator of stock market busts and (ii ) to describe the anomalous behavior of M3 in the last decade. Excess liquidity matters for both financial and price stability. -- money demand ; time-varying cointegration ; price-earnings ratios ; unemployment rate ; monetary policy.
Author | : |
Publisher | : |
Total Pages | : 44 |
Release | : 2007 |
Genre | : Demand for money |
ISBN | : |
Download A Portfolio Balance Approach to Euro-area Money Demand in a Time-varying Environment Book in PDF, ePub and Kindle
Author | : Sanvi Avouyi-Dovi |
Publisher | : |
Total Pages | : 0 |
Release | : 2012 |
Genre | : |
ISBN | : |
Download The Money Demand Function for the Euro Area Book in PDF, ePub and Kindle
This paper sets out to re-examine the money demand function for the euro area. Traditional specifications often yield unsatisfactory results: instability of short and long-term coefficients; relatively large differences between estimated and actual value of variables; and significant changes in the number of long-term relationships, etc. Using a standard Vector Error Correction Model, we find that the usual specification is indeed unstable. However, introducing a European equity price gives rise to a more stable system. Furthermore, recursive estimates confirm the relative stability of long-term coefficients. Estimates of the real money gap, based on the money demand equation including equity prices, point to moderate, albeit persistent, excess liquidity in the euro area in recent years. The real money gap contains information about future inflation but this content may have diminished since 2001.
Author | : Javier Andrés |
Publisher | : |
Total Pages | : 60 |
Release | : 2008 |
Genre | : Interest rates |
ISBN | : |
Download Money and the Natural Rate of Interest Book in PDF, ePub and Kindle
We examine the role of money in three environments: the New Keynesian model with separable utility and static money demand; a nonseparable utility variant with habit formation; and a version with adjustment costs for holding real balances. The last two variants imply forward-looking behavior of real money balances, with forecasts of future interest rates entering current portfolio decisions. We conduct a structural econometric analysis of the U.S. and euro area economies. FIML estimates confirm the forward-looking character of money demand. A consequence is that real money balances are valuable in anticipating future variations in the natural interest rate. [Resumen de autor]