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Does Liquidity Matter? Properties of a Divisia Monetary Aggregate in the Euro Area

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  • Livio Stracca

Abstract

This paper builds a quarterly Divisia monetary aggregate for the euro area using area‐wide data over the sample period from 1980 to 2000, finding two main results. First, it is found that the demand for this monetary aggregate has been well behaved and relatively stable over the last two decades. Secondly, the Divisia‐weighed monetary aggregate is found to have interesting information content from a forward‐looking perspective. This lends support to the view that money and – in a broader sense – liquidity services should be assigned an important role in shaping monetary policy in the euro area, although the policy maker is not interested in monetary aggregates per se.

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  • Livio Stracca, 2004. "Does Liquidity Matter? Properties of a Divisia Monetary Aggregate in the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(3), pages 309-331, July.
    • Handle: RePEc:bla:obuest:v:66:y:2004:i:3:p:309-331
    DOI: 10.1111/j.1468-0084.2004.00081.x
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