Wealth Effects on Money Demand in EMU [E-Book]: Econometric Evidence / Laurence Boone, Fanny Mikol and Paul van den Noord
Boone, Laurence.
Mikol, Fanny. / van den Noord, Paul.
Paris : OECD Publishing, 2004
20 p. ; 21 x 29.7cm.
OECD Economics Department Working Papers ; 411
Euro Area
Full Text
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 ...