Monetary overhang in times of covid: evidence from the euro area

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Abstract

This paper investigates the determinants of the monetary overhang in the euro area since the outbreak of covid-19. To this end, we estimate a long-run panel money demand function for 18 euro area countries over the period from 2003 to 2019. We calculate the monetary overhang since 2020 as the difference between the actual money stock and the value implied by the money demand function. Making use of cross-sectional heterogeneity and time variation in government responses to covid-19, we relate the monetary overhang to covid-19 response indicators, as well as to confidence indicators. We find that the monetary overhang is significantly related to the level of economic support, the stringency of the containment policy and the economic sentiment indicator.

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CITATION STYLE

APA

Arnold, I. J. M. (2022). Monetary overhang in times of covid: evidence from the euro area. Applied Economics, 54(35), 4030–4042. https://doi.org/10.1080/00036846.2021.2020711

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