IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-00308654.html
   My bibliography  Save this paper

Is there a structural break in equilibrium velocity in the euro area?

Author

Listed:
  • Christian Bordes

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Laurent Clerc

    (Direction de la Recherche - Banque De France - Banque de France)

  • Vêlayoudom Marimoutou

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

We investigate the stability of M3 income velocity in the euro area. We apply a set of breakpoint procedures to examine this issue and conclude that at least one structural change occurred around 2000-2001. We also ...nd evidence of another structural break around 1992-1993. These two breaks seem to a¤ect both the level and the slope of the income velocity of M3. We then estimate a model of equilibrium velocity that factors in the opportunity cost of M3, along the lines suggested by Orphanides and Porter (2000). Here again, we ...nd some evidence of instability in equilibrium velocity. Given the importance of the assumption of stable velocity trends for both the derivation of the reference value and the two-pillar strategy of the Eurosystem, these findings question the relevance of some excess liquidity indicators directly computed from the reference value and may call for some adjustments in the conduct of the ECB's monetary policy.

Suggested Citation

  • Christian Bordes & Laurent Clerc & Vêlayoudom Marimoutou, 2007. "Is there a structural break in equilibrium velocity in the euro area?," Post-Print hal-00308654, HAL.
    • Handle: RePEc:hal:journl:hal-00308654
    Note: View the original document on HAL open archive server: https://hal.science/hal-00308654
    as

    Download full text from publisher

    File URL: https://hal.science/hal-00308654/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christian Bordes & Laurent Clerc, 2007. "Price Stability And The Ecb'S Monetary Policy Strategy," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 268-326, April.
    2. Guenter W. Beck & Volker Wieland, 2007. "Money in Monetary Policy Design: A Formal Characterization of ECB-Style Cross-Checking," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 524-533, 04-05.
    3. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    4. Jushan Bai & Pierre Perron, 2003. "Critical values for multiple structural change tests," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 72-78, June.
    5. Drumetz, F. & Avouyi-Dovi, S. & Brun, M. & Dreyfus, A. & Oung, V. & Sahuc, J-G., 2005. "La fonction de demande de monnaie pour la zone euro : un réexamen," Bulletin de la Banque de France, Banque de France, issue 142, pages 23-39.
    6. Frederic S. Mishkin, 2009. "Monetary Policy Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262513374, April.
    7. Carlson, John B. & Craig, Ben & Schwarz, Jeffrey C., 2000. "Structural uncertainty and breakpoint tests: an application to equilibrium velocity1," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 101-115.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barthélemy, Jean & Clerc, Laurent & Marx, Magali, 2011. "A two-pillar DSGE monetary policy model for the euro area," Economic Modelling, Elsevier, vol. 28(3), pages 1303-1316, May.
    2. Michael Woodford, 2008. "How Important Is Money in the Conduct of Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1561-1598, December.
    3. Jung, Alexander, 2017. "Forecasting broad money velocity," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 421-432.
    4. Lydia Ndirangu & Esman Morekwa Nyamongo, 2015. "Financial Innovations and Their Implications for Monetary Policy in Kenya," Journal of African Economies, Centre for the Study of African Economies, vol. 24(suppl_1), pages 46-71.
    5. Wolfgang Nierhaus & Timo Wollmershäuser, 2016. "ifo Konjunkturumfragen und Konjunkturanalyse: Band II," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 72.
    6. Gabe J. De Bondt, 2010. "New Evidence On The Motives For Holding Euro Area Money," Manchester School, University of Manchester, vol. 78(3), pages 259-278, June.
    7. MEZUI-MBENG, Pamphile, 2010. "Tramsission de la politique monétaire: le cas des pays de la CEMAC [Monetary policy transmission: the case of the CEMAC]," MPRA Paper 26032, University Library of Munich, Germany.
    8. Stéphane Sorbe & Timo Wollmershäuser, 2007. "Mittelfristige Inflationsprognose: Das Dilemma der Zwei-Säulen-Strategie der EZB," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(11), pages 16-24, June.
    9. repec:hal:spmain:info:hdl:2441/7umo3loae88ks85fddjte9ieal is not listed on IDEAS
    10. repec:spo:wpmain:info:hdl:2441/7umo3loae88ks85fddjte9ieal is not listed on IDEAS
    11. Legrand, Romain, 2014. "Euro introduction: Has there been a structural change? Study on 10 European Union countries," Economic Modelling, Elsevier, vol. 40(C), pages 136-151.
    12. Woodford, Michael, 2007. "Does a 'Two-Pillar Phillips Curve' Justify a Two-Pillar Monetary Policy Strategy?," CEPR Discussion Papers 6447, C.E.P.R. Discussion Papers.
    13. Mr. Helge Berger & Mr. Thomas Harjes & Mr. Emil Stavrev, 2008. "The ECB’s Monetary Analysis Revisited," IMF Working Papers 2008/171, International Monetary Fund.
    14. Scott Benolkin & George A. Kahn, 2007. "The role of money in monetary policy: why do the Fed and ECB see it so differently?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q III), pages 5-36.
    15. Clerc, L., 2007. "Understanding Asset Prices: Determinants and Policy Implications," Working papers 168, Banque de France.
    16. Berger, Helge & Harjes, Thomas & Stavrev, Emil, 2008. "The ECB's monetary analysis revisited," Discussion Papers 2008/14, Free University Berlin, School of Business & Economics.
    17. Projektgruppe Gemeinschaftsdiagnose, 2007. "Aufschwung legt Pause ein," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(20), pages 03-58, October.
    18. Nuno Alves, 2007. "Is the euro area M3 abandoning us?," Working Papers w200720, Banco de Portugal, Economics and Research Department.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter Lildholdt & Anne Vila Wetherilt, 2004. "Anticipation of monetary policy in UK financial markets," Bank of England working papers 241, Bank of England.
    2. Barthélemy, Jean & Clerc, Laurent & Marx, Magali, 2011. "A two-pillar DSGE monetary policy model for the euro area," Economic Modelling, Elsevier, vol. 28(3), pages 1303-1316, May.
    3. Kumar, Nikeel Nishkar & Patel, Arvind, 2023. "Nonlinear effect of air travel tourism demand on economic growth in Fiji," Journal of Air Transport Management, Elsevier, vol. 109(C).
    4. Umar, Muhammad & Su, Chi-Wei & Rizvi, Syed Kumail Abbas & Lobonţ, Oana-Ramona, 2021. "Driven by fundamentals or exploded by emotions: Detecting bubbles in oil prices," Energy, Elsevier, vol. 231(C).
    5. Bertrand Groslambert & Raphaël Chiappini & Olivier Bruno, 2015. "Bank Output Calculation in the Case of France: What Do New Methods Tell About the Financial Intermediation Services in the Aftermath of the Crisis?," GREDEG Working Papers 2015-32, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    6. MARTÍNEZ-RUIZ, Elena & NOGUES-MARCO, Pilar, 2018. "The Political Economy of Exchange Rate Stability During the Gold Standard. Spain 1874—1914," Discussion paper series HIAS-E-75, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    7. repec:zbw:bofitp:urn:nbn:fi:bof-201505061169 is not listed on IDEAS
    8. Gao, Yixuan & Malone, Trey & Schaefer, K. Aleks & Myers, Robert J., 2023. "Disentangling Short-Run COVID-19 Price Impact Pathways in the US Corn Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(2), May.
    9. Devi, P. Indira & Shanmugam, K.R. & Jayasree, M.G., 2012. "Compensating Wages for Occupational Risks of Farm Workers in India," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 67(2), pages 1-12.
    10. Dupuy, Arnaud & Marey, Philip S., 2008. "Shifts and twists in the relative productivity of skilled labor," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 718-735, June.
    11. Adjemian, Michael K. & Smith, Aaron & He, Wendi, 2021. "Estimating the market effect of a trade war: The case of soybean tariffs," Food Policy, Elsevier, vol. 105(C).
    12. Altansukh, Gantungalag & Becker, Ralf & Bratsiotis, George J. & Osborn, Denise R., 2017. "What is the Globalisation of Inflation?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 74, pages 1-27.
    13. CHOI, Jay Pil & FURUSAWA, Taiji, 2018. "Transfer Pricing and the Arm's Length Principle under Imperfect Competition," Discussion paper series HIAS-E-73, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    14. Boldea, Otilia & Hall, Alastair R., 2013. "Estimation and inference in unstable nonlinear least squares models," Journal of Econometrics, Elsevier, vol. 172(1), pages 158-167.
    15. Anthony Garratt & Shaun P Vahey, 2006. "UK Real-Time Macro Data Characteristics," Economic Journal, Royal Economic Society, vol. 116(509), pages 119-135, February.
    16. Stefano Mainardi, 2018. "Fishing vessel efficiency, skipper skills and hake pricetransmission in a small island economy," Review of Agricultural, Food and Environmental Studies, INRA Department of Economics, vol. 99(3-4), pages 215-251.
    17. Guglielmo Maria Caporale & Abdurrahman Nazif Catik & Gül Serife Huyugüzel Kisla & Mohamad Husam Helmi & Coskun Akdeniz, 2021. "Oil Prices, Exchange Rates and Sectoral Stock Returns in the BRICS-T Countries: A Time-Varying Approach," CESifo Working Paper Series 9322, CESifo.
    18. Hall, Alastair R. & Han, Sanggohn & Boldea, Otilia, 2012. "Inference regarding multiple structural changes in linear models with endogenous regressors," Journal of Econometrics, Elsevier, vol. 170(2), pages 281-302.
    19. repec:spo:wpmain:info:hdl:2441/7umo3loae88ks85fddjte9ieal is not listed on IDEAS
    20. Hasan Engin Duran & Andrzej Cieślik, 2021. "The distribution of city sizes in Turkey: A failure of Zipf’s law due to concavity," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(5), pages 1702-1719, October.
    21. Carlos Alberto Carrasco, 2016. "Causality between external balance and (some) fiscal variables: Preliminary results for the Eurozone," Economics and Business Letters, Oviedo University Press, vol. 5(3), pages 80-86.
    22. Boubaker, Sabri & Essaddam, Naceur & Nguyen, Duc Khuong & Saadi, Samir, 2017. "On the robustness of week-day effect to error distributional assumption: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 114-130.

    More about this item

    Keywords

    Breakpoint tests; ECB; M3 velocity;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00308654. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.