Alessandro Calza

Modelling the Demand for Loans to the Private Sector in the Euro Area

This article studies the determinants of loans to the private sector in the euro area. Using the Johansen methodology, the study identifies one cointegrating relationship linking real loans, GDP and interest rates. This relationship implies that in the long-run real loans are positively related to real GDP and negatively to real short-term and long-term interest rates. Both the signs and the magnitude of the coefficients suggest that the cointegrating vector describes a long-run demand equation. The short-run dynamics of the demand for euro area real loans is subsequently modelled by means of a Vector Error Correction Model (VECM). A number of specification tests performed on the VECM produce satisfactory results, with tests of stability of the model parameters showing no signs of structural breaks during the sample period (1980: 1–1999: 2). All of this suggests that developments in real loans to the private sector in the euro area can be reasonably explained by the model.

Euro Area Money Demand; Measuring the Opportunity Costs Appropriately

The existence of a well-specified and stable relationship between money and prices has long been perceived as a prerequisite for the use of monetary aggregates in the conduct of monetary policy. This paper contributes to the ongoing discussion about the stability of euro area money demand by constructing an own rate of return on euro area M3 and by analyzing its implications in a standard money demand system. Over the sample period, one cointegrating vector relating real M3, real GDP and the spread between the short-term interest rate and the own rate of M3 can be identified and interpreted as a long-run euro area money demand equation. A dynamic money demand system is subsequently estimated. Standard diagnostics stability tests and out-of-sample forecasts confirm the good statistical performance of the model.

Output and inflation responses to credit shocks: are there threshold effects in the euro area?

This paper investigates whether output and inflation respond asymmetrically to credit shocks in the euro area. The methodology, based on a non-linear VAR system, follows work by Balke (2000) for the U.S. The results reveal evidence of threshold effects related to credit conditions in the economy. Consistent with this finding, the impulse responses show some signs of asymmetric responses over the lending cycle. However, the results of the paper suggest that in the euro area non-linearities arising from credit market imperfections may be less pronounced than in the U.S., probably reflecting specific institutional features of its banking sector.

Sectoral Money Demand and the Great Disinflation in the US

Estimates of the welfare costs of inflation based on Baileys (1956) methodology are typically computed on the basis of aggregate money demand models. Yet, the behavior of money demand is likely to vary across sectors. As a result, the impact on welfare of changes in the inflation regime may differ between households and firms. We specifically investigate the sectoral welfare implications of the shift from the Great Inflation to the present regime of low and stable inflation. In order to do so, we estimate different functional specifications of sectoral money demand models for US households and non-financial firms using flow of funds data covering four decades. We find that the benefits were significant for both households and firms.

Shoe-Leather Costs in the Euro Area and the Foreign Demand for Euro Banknotes

We estimate the shoe-leather costs of inflation in the euro area using monetary data adjusted for holdings of euro banknotes abroad. While we find evidence of marginally negative shoe-leather costs for very low levels of the nominal interest rate, our estimates suggest that the shoe-leather costs are non-negligible even for relatively moderate levels of anticipated inflation. We conclude that, despite the increased circulation of euro banknotes abroad, in the euro area the inflation tax is still predominantly borne by domestic agents, with transfers of resources from abroad remaining small.

An econometric analysis of the main components of M3 in the Euro area

An Econometric Analysis of the Main Components of M3 in the Euro Area. — The main result is that the four components of M3 in the euro area can be explained in terms of a small set of explanatory variables (nominal GDP and interest rates) for the sample period January 1990 — September 1999 both in terms of levels and as shares of M3. Moreover, overall cointegration tests broadly support the hypothesis of long-run stability of the demand for the components of M3 and for M3 itself in nominal terms. Around the start of Stage Three of Monetary Union significant substitution between the components of M3 is detected. A refinement of the empirical analysis takes into account the correlation of the unexplained movements of the individual components using the SUR technique.ZusammenfassungEine ökonometrische Analyse der Hauptkomponenten von M3 in Euroland. — Das Hauptergebnis ist, dass die vier Komponenten von M3 in Euroland mit nur wenigen Variablen (nominales Bruttoinlandsprodukt und ZinssÄtze) für die Zeit zwischen Januar 1990 und September 1999 erklÄrt werden können, und zwar als Niveaugrö\en und Anteile von M3. überdies bestÄtigen Kointegrationstest grö\tenteils die Hypothese, dass die Nachfrage nach den Komponenten von M3 und nach M3 selbst in nominalen Grö\en langfristig stabil ist. Um den Beginn von Stufe Drei der WÄhrungsunion gab es signifikante Substitutionen zwischen den Komponenten von M3. Die empirische Analyse wird verfeinert, indem die Korrelation der unerklÄrten Bewegungen der individuellen Komponenten berücksichtigt wird und die Substitution der einzelnen Komponenten direkt modelliert wird.