TITLE:
The Behavior of the Components of M3 in the Euro Area: 1999-2014
AUTHORS:
Carlos Pateiro- Rodríguez, Esther Barros- Campello, Laura Varela Candamio, Carlos Pateiro- López
KEYWORDS:
Monetary Aggregates, ECB, Interest Rates, Monetary Policy
JOURNAL NAME:
Open Journal of Business and Management,
Vol.4 No.4,
August
25,
2016
ABSTRACT: In this paper, the evolution of the various components of the broad monetary aggregate
M3 at which the ECB attaches leading indicator properties of inflation expectations
in the euro area is studied. During the fifteen years that the ECB defines and
executes the stability-oriented monetary policy, M3 has not followed the developments
that initially would be compatible with the inflation target announced. For its
part, the components of the aggregate, in terms of their participation in it, have followed
different paths. In this paper, an analysis of stationarity and cointegration of
the series is done. The causes of such behavior in the light of the evolution of prices,
interest rates and economic growth are searched, using dummy variables for periods
of greater instability in the financial markets. We employ the Dynamic Ordinary
Least Square (DOLS) estimator, augmenting the estimated relation with lead and lag
differences of the explanatory variables to control for endogeneity and serial correlation
of the regressors.