Wealth effects on money demand in the euro area |
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Authors: | Laurence Boone Paul van den Noord |
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Institution: | (1) Barclays Capital, 21 boulevard de la Madeleine, 75038 Paris Cedex 01, France;(2) Economics Department, Organisation for Economic Co-ordination and Development (OECD), 2, Rue-André Pascal, 75775 Paris Cedex 16, France |
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Abstract: | We investigate the determinants of money demand (M3) in the euro area, considering that this variable remains an important
co-determinant of monetary policy making by the European Central Bank. Regressing the real stock of M3 on real GDP, interest
rates and wealth variables (real housing and stock prices) within an error-correction framework provides evidence of positive
wealth effects on money demand in the long run. Correcting for this wealth effect, money demand in the euro area has grown
almost exactly in line with the official reference value of 4 1/2% per annum.
This article builds on research that was conducted in preparation of the annual OECD Economic Survey of the euro area and reported in Boone et al. (2004). The authors thank their colleagues in the Economics Department and
the European Central Bank and two anonymous referees for their valuable comments. The authors assume full responsibility for
any remaining errors and omissions. The opinions expressed in this article do not necessarily represent those of the OECD
or its member countries |
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Keywords: | Money demand Inflation Wealth |
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