Working Paper: A new model for money demand in Denmark: Money demand in a negative interest rate environment

Working Paper - February 2019 - No. 136

Authors Hensch, Jonas Ladegaard (Danmarks Nationalbank)
Subject The money and currency markets; Models; Interest and exchange rates
Type Working paper
Year 2019
Published 27 February 2019
Within a cointegrated VAR framework I show that the traditional money-demand relation can no longer explain the recent development of monetary aggregates in Denmark. Instead, I argue that the introduction of housing wealth and the role of precautionary demand for liquidity improves both the explanatory power of money demand and the stability of the long-run estimates. Finally, I show that the negative interest rate environment has not affected the underlying determination of money demand.