The demand for euros

Long-Run Money Demand in OECD Countries – Cross-Member Cointegration

“…The estimated income elasticities vary between 0.18 (Garcia-Hiernaux and Cerno, 2006) and 2.66 , but are usually slightly greater than one. The estimated interest rate (semi-) elasticities are in the range of -0.71 (Nautz and Rondorf, 2010) and 0.008 (Arnold and Roelands, 2010), where the latter value should be treated as an exception with a sign contrary to theory. For the exchange rate there exists no clear sign which can be imposed from theory.…”

“…Setzer and Greiber (2007) (2010)) 1 , but panel data studies usually do not. The studies by Arnold and Roelands (2010) and Nautz and Rondorf (2010)) are the only exceptions. Arnold and Roelands (2010) found a positive impact of house prices on money demand for the whole panel of ten euro area countries, but no significant impact of stock prices.…”

“…The studies by Arnold and Roelands (2010) and Nautz and Rondorf (2010)) are the only exceptions. Arnold and Roelands (2010) found a positive impact of house prices on money demand for the whole panel of ten euro area countries, but no significant impact of stock prices. Nautz and Rondorf (2010) cannot reject empirically that neither house prices nor stock prices significantly affect euro area long-run money demand.…”

“…According to Ericsson (1998), the main body of theories of money demand Arnold and Roelands (2010) Euro Area M3 1.55 to 2.60 -0.011 to 0.008 Kumar et al (2010) 11 OECD count. M1 0.83 to 0.87 -0.05 to -0.01 -0.03 Kumar (2010) 5 Pacific Island c. M1 0.98 to 1.06 -0.02 to -0.03 Nautz and Rondorf (2010) Euro Area M3 1.41 to 1.55 -0.71 to -0.40 7 assumes a long-run money demand function…”

On the empirical relevance of the Lucas critique: the case of euro area money demand

“…The wealth effect is often proxied by house prices, as this specification tends to be superior over alternatives like stock prices. Based on a panel analysis, Arnold and Roelands (2010) concluded that the inclusion of house prices is necessary to obtain an income elasticity of one, and that country specific developments in house prices can explain a significant part of the deviations from money demand in the period before the crisis. Beyer (2009) found a stable money demand function for M3 up to the crisis.…”