Does money matter in the euro area? Evidence from a new Divisia index

- We create and make available a dataset on euro-area Divisia-money aggregates.
- VARs reveal significant euro-area output and prices responses to Divisia-money shocks.
- After a short-term liquidity effect, Divisia-money shocks increase interest rates.
- Divisia-money reacts to user costs and interest rates shocks.
- Most of these results are not significant when we use simple-sum measures of money.

We create a euro-area Divisia-money dataset and estimate theoretically correct responses to money, user cost and interest rate shocks using structural vector-autoregressions. Our findings suggest that money matters for output, prices and interest rates, while the European Central Bank can influence monetary developments.