Abstract
This chapter argues that a stable broad money demand for the euro area over the period 1980–2011 can be obtained by modelling cross- border international portfolio allocation. We first observe that, in this first decade of the new millennium, the breakdown of standard money demand specifications for the euro area and the strong developments in annual M3 growth coincide with large net flows in portfolio invest- ment in the euro area. We then estimate a new money demand, which turns out to be stable, by including variables explaining portfolio flows omitted in the traditional specifications.
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© 2014 Roberto A. De Santis, Carlo A. Favero and Barbara Roffia
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De Santis, R.A., Favero, C.A., Roffia, B. (2014). Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability. In: Winkler, B., Riet, A.v., Bull, P. (eds) A Flow-of-Funds Perspective on the Financial Crisis. Palgrave Studies in Econmics and Banking. Palgrave Macmillan, London. https://doi.org/10.1057/9781137352989_4
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DOI: https://doi.org/10.1057/9781137352989_4
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