A Cointegration Model of Money and Wealth
38 Pages Posted: 13 Mar 2019
Date Written: August 7, 2018
Extending the data set used in Beyer (2009) to 2017, we estimate I(1) and I(2) money demand models for euro area M3. After including two broken trends and a few dummies to account for shifts in the variables following the global financial crisis and the ECB's non-standard monetary policy measures, we find that the money demand and the real wealth relations identified in Beyer (2009) have remained remarkably stable throughout the extended sample period. Testing for price homogeneity in the I(2) model we find that the nominal-to-real transformation is not rejected for the money relation whereas the wealth relation cannot be expressed in real terms.
Keywords: money demand, wealth, cointegration, vector error correction model, I(2) analysis
JEL Classification: E41, C32, C22
Suggested Citation: Suggested Citation