Wealth effects on money demand in the euro area

Boone, Laurence; Noord, Paul van den

doi:10.1007/s00181-007-0134-5

Cited by 39 publications

(32 citation statements)

References 11 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Although the income-elasticity of demand for narrow money balances apparently showed a decreasing trend in the United States following financial deregulation and innovation, the income-elasticity of demand for narrow money balances in Australia has showed an increasing trend since financial deregulation in the early 1980s (Hossain 1994). It appears that in the low-inflationary environment that emerged in Australia following the introduction of inflation targeting in the early 1990s, the demand for narrow money, which remains a highly liquid asset, has increased more than proportionately with increases in income 16 (Boone and van den Noord 2008). Razzak (2001) has reported a similar finding for New Zealand.…”

Section: Estimation and Interpretation Of Long-run Coefficients Of Thsupporting

confidence: 54%

Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009

Hossain¹

2011

Empir Econ

View full text Add to dashboard Cite

Using annual data for the period 1970-2009, this paper deploys the ARDL cointegration approach to determine whether there exists an economically meaningful, stable narrow money demand relationship in Australia. The statistical results suggest the presence of a long-run equilibrium relationship between real narrow money balances, real income, a representative domestic interest rate (e.g., the yield on Australian government short-term bonds) and the nominal effective exchange rate of the Australian dollar. The statistical tests suggest no significant instability in the narrow money demand relationship despite financial deregulation and innovation in Australia since the early 1980s. In contrast, the paper reports statistical results which suggest no meaningful, stable broad money demand relationship in Australia over the sample period.Keywords Narrow money demand · ARDL cointegration approach · Money demand instability · Monetary policy in Australia JEL Classification C23 · E41 · E52

show abstract

Section: Estimation and Interpretation Of Long-run Coefficients Of Thsupporting

confidence: 54%

Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009

Hossain¹

2011

Empir Econ

View full text Add to dashboard Cite

show abstract

“…Since both income and wealth increase the total volume of liquid assets that a household can possibly hold, wealth might be a relevant gure in portfolio decisions. Note, however, that it is not indisputable that the eect of wealth on the demand for money is positive, see Boone and van den Noord (2008). A rise in wealth can also cause a decline in money demand due to a substitution eect that is opposed by the positive income eect of wealth.…”

Section: The Role Of Wealthmentioning

confidence: 99%

“…Examples include proxies for wealth (Boone andvan den Noord 2008, Beyer 2009) and macroeconomic uncertainty (Greiber andLemke 2005, de Bondt 2009), the prices of stocks Wolters 2009, 2010) and their volatility (Carstensen 2006).…”

Section: Introductionmentioning

confidence: 99%

The (in)stability of money demand in the euro area: lessons from a cross-country analysis

Nautz

Rondorf

2010

Empirica

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe instability of standard money demand functions has undermined the role of monetary aggregates for monetary policy analysis in the euro area. This paper uses country-specic monetary aggregates to shed more light on the economics behind the instability of euro area money demand. Our results obtained from panel estimation indicate that the observed instability of standard money demand functions could be explained by omitted variables like e.g. technological progress that are important for money demand but constant across member countries. JEL classication: E41, E51, E52Keywords: Money demand, cross-country analysis, panel error correction model, euro area * We thank Jörg Breitung and Christian Oermanns for helpful comments and suggestions.

show abstract

“…For example, a surge in house prices may trigger a rise in the demand for money due to an increase in net household wealth or due to a higher transaction volume on housing and construction markets (Friedman 1988 To further investigate the relative importance of these potential relationships, this study tries to establish an empirical link between money and housing developments. By explicitly taking liquidity considerations into account, we add to the recent literature which emphasises the role of housing for economic activity (Goodhart and Hofmann 2007) Furthermore, we enrich the small empirical branch of the literature which studies the relationship between house prices and monetary aggregates, but does not use a money demand approach (Gouteron and Szpiro 2005) or disregards interdependencies between the variables of interest (Boone and van den Noord 2007).…”

Section: Introductionmentioning

confidence: 99%

Money and Housing: Evidence for the Euro Area and the US

Greiber

Setzer

2008

SSRN Journal

View full text Add to dashboard Cite

This paper examines the relation between money and housing variables in the euro area and in the US. Our empirical model is based on a standard money demand relation which is augmented by housing market variables. In doing so, co-integrated money demand relationships can be established for both the euro area and the US. Furthermore, we find evidence for asset inflation channels, that is, liquidity fuels housing market developments. JEL Classification: E41, E52Keywords: money demand, asset inflation, housing, wealth Non technical summaryThis paper examines both for the euro area and the US the relationship between monetary developments and the housing market, i.e. whether booms on real estate markets can be influenced by expansionary monetary policy or whether rising house prices may contribute to strong monetary growth. From a theoretical point of view, multiple interdependencies between money and the housing sector can be identified. A surge in house prices may trigger a rise in the demand for money due to an increase in net household wealth or due to higher transaction volume on housing and construction markets. Causality could also run from monetary developments to the housing market if an expansionary monetary policy provides excess liquidity and thereby causes asset inflation. In addition, developments in the housing market have important implications for the lending behaviour of banks since higher house prices increase the collateral values of homes and improve home owners' access to loans, thereby fostering credit and money growth.In order to gauge the links between money and housing empirically, we augment a standard money demand function with variables representing developments in the housing sector (property prices and property wealth). Moreover, to obtain further insights into the relationship between developments in the housing sector and money, we enrich our benchmark specification by variables representing financing conditions. We find strong evidence for the notion that the recent surge in house prices and the loose monetary conditions are related phenomena. Both for the euro area and the US significant bidirectional links between money and housing can be identified. The inclusion of variables representing developments in the housing sector helps to explain the dynamics of money. In contrast to conventional money demand specifications a cointegrated money demand relationship can be established for the euro area and the US up to the fourth quarter of 2006. In addition, there is also strong evidence that monetary policy influences housing market developments by improving financing conditions, thereby increasing demand for housing.

show abstract

Wealth effects on money demand in the euro area

Abstract: Money demand, Inflation, Wealth, E41, E52,

Cited by 39 publications

References 11 publications

Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009

Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009

The (in)stability of money demand in the euro area: lessons from a cross-country analysis

Money and Housing: Evidence for the Euro Area and the US

Contact Info

Product

Resources

About