Wealth Effects on Money Demand in EMU Econometric Evidence
This paper investigates the determinants of money demand (M3) in the euro area. It specifically examines the potential impact of financial and housing wealth on money demand. It tests the hypothesis, whether wealth associated with increases in asset prices is used to finance liquidity holdings in a...
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| Other Authors: | , |
| Format: | eBook |
| Language: | English |
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Paris
OECD Publishing
2004
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| Series: | OECD Economics Department Working Papers
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| Subjects: | |
| Online Access: | |
| Collection: | OECD Books and Papers - Collection details see MPG.ReNa |
| Summary: | This paper investigates the determinants of money demand (M3) in the euro area. It specifically examines the potential impact of financial and housing wealth on money demand. It tests the hypothesis, whether wealth associated with increases in asset prices is used to finance liquidity holdings in a standard portfolio context. Regressing velocity on interest rates and a wealth variable (a composite of residential property and stocks) within an error-correction framework provides evidence of positive wealth effects from financial and housing assets on money demand in the long run, but no significant impact in the short run. Tests suggests that the long-run and dynamic money demand equations are stable and have not been disrupted by the adoption of the euro on 1 January 1999, while the impact of wealth on money demand may have increased .. |
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| Physical Description: | 19 p. 21 x 29.7cm |