Heterogeneity in Money Holdings Across Euro Area Countries: The Role of Housing
44 Pages Posted: 8 Jun 2016
Date Written: 2010
In this paper we examine why monetary aggregates of euro area Member States have developed differently since the inception of the euro. We derive a money demand equation that incorporates housing wealth and collateral as well as substitution effects on real money holdings. Empirically, we show that cross-country differences in real balances are determined not only by income differences, a standard determinant of money demand, but also by house price developments. Higher house prices and higher user costs of housing are both associated with larger money holdings. Country-specific money holdings are also connected with structural features of the housing market.
Keywords: Money, housing, national contribution, euro area
JEL Classification: E41, E51, E52
Suggested Citation: Suggested Citation