Euro area money demand stability

Cosgrove, M., Singh, C. and Sheehan, Maura (2008) Euro area money demand stability Journal of Business & Economics Research, 6 (2). pp. 15-21. ISSN 2157-8893

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The European Central Bank (ECB) has price level stability as its primary target, and operates via an interest-rate measure to achieve its target over the short term. The ECB also explicitly incorporates a quantity measure, M3, into their monetary framework to help assess the medium to longer term risks to price level stability. Use of M3 by the ECB implies a stable relationship between money and prices. We analyzed the behavior of monetary aggregates, and concluded that the ECB's use of M3 may have some merit over the medium to longer-term as an indicator of price pressure from a quantity theory of money perspective. But there appears to be a question as to stability of money demand since it is not clear if there is a constant interest-rate elasticity. So, in practice, it remains unclear if the ECB gives much credence to any of the monetary aggregates. In particular, this applies to M3 since the ECB cannot directly control that measure.

Item Type: Journal article
Subjects: L000 Social Sciences > L100 Economics > L160 International economics and trade
Faculties: Brighton Business School
Depositing User: Converis
Date Deposited: 18 Feb 2010
Last Modified: 22 Apr 2015 10:28

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