The demand for M3 in the euro area

Arbeitspapier

In this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long- and the short-term nominal interest rates, (ii) the long-term real interest rate, and (iii) a long-run demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the long-run parameters. Hence, following a general-to-specific modelling approach, a parsimonious conditional error-correction model for M3 money demand is derived which can be interpreted economically. For the conditional model, long-and short-run parameter stability is extensively tested and not rejected. Insights into the dynamics of money demand are gained by means of SVAR techniques exploring the impulse response functions of the cointegrated multivariate system.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 6

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Demand for Money
• Subject: cointegration ; error-correction model ; euro area ; impulse response analysis ; Money demand

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Coenen, Guenter ; Vega, Juan Luis
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 1999

Further information

• Handle: http://hdl.handle.net/10419/152440
• Last update: 10.03.2025, 11:44 AM CET