Unconventional Monetary Policy and Money Demand

31 Pages Posted: 19 Jun 2014

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Jürgen Wolters

Free University of Berlin (FUB)

Date Written: May 2014


This paper investigates the usefulness of the money demand relationship in times of unconventional monetary policies by cointegration methods. In contrast to the bulk of the literature, evidence in favour of a stable long run money demand function is presented both for the US and the euro area. Results are based on standard monetary aggregates, i.e. MZM for the US and M3 in case of the euro area. The recent monetary policy shifts towards unconventional measures did not introduce instability in the relationships. The results suggest that money balances are still useful instruments to conduct monetary policy especially in periods where the nominal interest rates are at the zero lower bounds.

Keywords: Unconventional monetary policy, money demand, stability

JEL Classification: C22, C52, E41

Suggested Citation

Dreger, Christian and Wolters, Jürgen, Unconventional Monetary Policy and Money Demand (May 2014). DIW Berlin Discussion Paper No. 1382, Available at SSRN: https://ssrn.com/abstract=2456117 or http://dx.doi.org/10.2139/ssrn.2456117

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732

Jürgen Wolters

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
D-10785 Berlin, Berlin 14195
+49-30-838-2014 (Phone)
+49-30-838-4142 (Fax)

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