M3 as an economic indicator in the Eurozone

Abstract

The aim of this paper is to analyze the influence of monetary aggregate on economic indicators in the Eurozone. Cointegration this selected indicator monetary aggregate M3 is demonstrated in relation to the development of HICP, GDP, commodity prices and credits using Granger causality. Quarterly data between the years 1996 – 2017 are included in the analysis. Because we did not confirm the long-term relationship of the selected indicators, we continue with Granger causality. We found causal relationships between monetary aggregate M3 and GDP, HICP, commodity prices and credits. In all cases, the selected indicators have the opposite effect in Granger causality too. We also cannot definitely evaluate the effectiveness of the European Central Bank’s monetary policy and cannot confirm the use of monetary aggregate M3 as an economic indicator of future economic development in the Eurozone.