Is euro area money demand for M3 still stable?

• The paper estimates a portfolio demand approach for broad money M3 in the euro area.
• It applies cointegration analysis to the main components of M3.
• They are largely stable and can be explained by its fundamental determinants.
• Instabilities are detected during the euro cash changeover and the financial crisis.

The aim of the paper is to reassess the issue of money demand stability by estimating a portfolio demand approach for broad money M3 in the euro area covering the sample 1999 to 2013. The question is relevant, since in view of the massive shocks observed since the start of the financial crisis in 2007 relationships may have changed. Overall, the paper finds that the main components of euro area M3 are largely stable and can be explained by fundamental factors such as a transaction variable and opportunity costs. Nevertheless, the analysis detects some instabilities originating from the demand for currency in circulation linked to the euro cash changeover and for marketable instruments in an environment of very low interest rates.