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Heterogeneity in money holdings across euro area countries: the role of housing

Ralph Setzer, Paul van den Noord, Guntram B. Wolff (European Commission)

Heterogeneity in money holdings across euro area countries: the role of housingpdf(937 kB) Choose translations of the previous link 

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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.

(European Economy. Economic Papers. 407. February 2010. Brussels. PDF. 30pp. Tab. Graph. Bibliogr. Free.)

KC-AI-10-407-EN-N (online)
ISBN 978-92-79-14893-4 (online)
ISSN 1725-3187
doi:doi 10.2765/40813 (online)

JEL classification: E41, E51, E52

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