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Wealth and the demand for money in the European Union

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Abstract

This study presents the results of an empirical analysis of the demand for money in the European Union as a whole over the period 1971–1995, with a particular focus on the impact of financial wealth. The empirical evidence shows a substantial impact of wealth on the demand for M2 and M3, whereas no influence of wealth on the demand for M1 is found. This finding may explain the remarkable increase of the broad monetary aggregates over the last decade or so. This means that taking into account the growth of wealth, the monetary expansion has been fairly modest. The evidence thus indicates that the strong increase of M2 and M3 should be attributed to portfolio investment considerations rather than to an expansionary monetary policy.

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Authors and Affiliations

  1. Econometric Research and Special Studies Department, De Nederlandsche Bank NV, P.O. Box 98, 1000 AB, Amsterdam, The Netherlands

    Martin M. G. Fase & Carlo C. A. Winder

  2. Faculty of Economics and Econometrics, University of Amsterdam, Roetersstraat 11, 1018 WB, Amsterdam, The Netherlands

    Martin M. G. Fase

Authors
  1. Martin M. G. Fase
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  2. Carlo C. A. Winder
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Additional information

Helpful comments by two anonymous referees, the participants in the Workshop on Money Demand at the Humboldt Universität and Hans Lunsing gratefully acknowledged.

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Fase, M.M.G., Winder, C.C.A. Wealth and the demand for money in the European Union. Empirical Economics 23, 507–524 (1998). https://doi.org/10.1007/BF01294420

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  • DOI: https://doi.org/10.1007/BF01294420

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