The demand for euros
AbstractThis paper investigates the demand for euros using panel data for 10 euro area countries covering the period from 1999 to 2008. Monetary aggregates are constructed to ensure that money is a national concept by excluding deposits owned by non-residents and including external deposits owned by residents. Initial estimates of a standard money demand function yield income elasticities which are high in comparison with what is typically found in the literature. We next expand the money demand function with four wealth and uncertainty variables, of which housing prices is the most significant one. The inclusion of housing prices in the panel regression reduces the income elasticity to around one. Country-specific developments in housing prices are also able to explain part of the monetary overhang in the euro area since 2005. We conclude that housing price developments within the euro area are relevant to an understanding of the demand for euros, and thus warrant close attention by policymakers at the ECB.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 32 (2010)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622617
Money demand Wealth effects EMU Panel estimation;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
- Claus Brand & Nuno Cassola, 2004. "A money demand system for euro area M3," Applied Economics, Taylor and Francis Journals, vol. 36(8), pages 817-838.
- Christian Dreger & Jürgen Wolters, 2008.
"M3 Money Demand and Excess Liquidity in the Euro Area,"
Working Paper / FINESS
7.1a, DIW Berlin, German Institute for Economic Research.
- Christian Dreger & Jürgen Wolters, 2010. "M3 money demand and excess liquidity in the euro area," Public Choice, Springer, vol. 144(3), pages 459-472, September.
- Christian Dreger & Jürgen Wolters, 2008. "M3 Money Demand and Excess Liquidity in the Euro Area," Discussion Papers of DIW Berlin 795, DIW Berlin, German Institute for Economic Research.
- Christian Dreger & Hans-Eggert Reimers & Barbara Roffia, 2007.
"Long-Run Money Demand in the New EU Member States with Exchange Rate Effects,"
Eastern European Economics,
M.E. Sharpe, Inc., vol. 45(2), pages 75-94, April.
- Dreger, Christian & Reimers, Hans-Eggert & Roffia, Barbara, 2006. "Long-run money demand in the new EU Member States with exchange rate effects," Working Paper Series 0628, European Central Bank.
- Angeloni, Ignazio & Ehrmann, Michael, 2004.
"Euro area inflation differentials,"
Working Paper Series
0388, European Central Bank.
- Andreas Beyer & Jurgen A. Doornik & David F. Hendry, 2000. "Reconstructing Aggregate Euro-zone Data," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 613-624, November.
- Nelson C. Mark & Donggyu Sul, 2002.
"Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand,"
NBER Technical Working Papers
0287, National Bureau of Economic Research, Inc.
- Nelson C. Mark & Donggyu Sul, 2003. "Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 655-680, December.
- Fischer, Andreas M, 2005.
"Measuring Income Elasticity for Swiss Money Demand: What Do the Cantons Say About Financial Innovation?,"
CEPR Discussion Papers
5050, C.E.P.R. Discussion Papers.
- Fischer, Andreas M., 2007. "Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation?," European Economic Review, Elsevier, vol. 51(7), pages 1641-1660, October.
- Andreas Fischer, 2005. "Measuring Income Elasticity for Swiss Money Demand: What do the cantons say about financial innovation?," Working Papers 05.01, Swiss National Bank, Study Center Gerzensee.
- Andreas M. Fischer, 2006. "Measuring Income Elasticity for Swiss Money Demand: What do the Cantons say about Financial Innovation?," Working Papers 2006-01, Swiss National Bank.
- Gunter Coenen & Juan Luis Vega, 2000.
"The Demand for M3 in the Euro Area,"
Econometric Society World Congress 2000 Contributed Papers
0976, Econometric Society.
- Pedroni, Peter, 1999.
" Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
- Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
- Lars E.O. Svensson & Stefan Gerlach, 2001.
"Money and inflation in the Euro Area: A case for monetary indicators?,"
BIS Working Papers
98, Bank for International Settlements.
- Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
- Gerlach, Stefan & Svensson, Lars E O, 2002. "Money and Inflation in the Euro-Area: A Case for Monetary Indicators?," CEPR Discussion Papers 3392, C.E.P.R. Discussion Papers.
- Stefan Gerlach & Lars E.O. Svensson, 2000. "Money and Inflation in the Euro Area: A Case for Monetary Indicators?," NBER Working Papers 8025, National Bureau of Economic Research, Inc.
- Mike Artis & Andreas Beyer, 2004. "Issues in Money Demand: The Case of Europe," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 717-736, November.
- Stock, James H & Watson, Mark W, 1993.
"A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems,"
Econometric Society, vol. 61(4), pages 783-820, July.
- James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
- Tom Doan, . "SWDOLS: RATS procedure to estimate cointegrating vectors using dynamic OLS," Statistical Software Components RTS00207, Boston College Department of Economics.
- Roberto Golinelli & Sergio Pastorello, 2002. "Modelling the demand for M3 in the Euro area," European Journal of Finance, Taylor and Francis Journals, vol. 8(4), pages 371-401.
- G. William Schwert, 1990.
"Why Does Stock Market Volatility Change Over Time?,"
NBER Working Papers
2798, National Bureau of Economic Research, Inc.
- Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
- Rother, Philipp C., 1998. "European monetary integration and the demand for money," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 691-711, August.
- Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004.
"Money Demand in theEuroArea: Do National Differences Matter?,"
0404019, EconWPA, revised 24 Apr 2004.
- Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2001. "Money demand in the euro area: do national differences matter?," Temi di discussione (Economic working papers) 405, Bank of Italy, Economic Research and International Relations Area.
- Laurence Boone & Paul Noord, 2008. "Wealth effects on money demand in the euro area," Empirical Economics, Springer, vol. 34(3), pages 525-536, June.
- Sala-i-Martin, X. & Mulligan, C.B., 1992.
"U.S. Money Demand: Surprising Cross-Sectional Estimates,"
671, Yale - Economic Growth Center.
- Casey B. Mulligan & Xavier Sala-I-Martin, 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 285-343.
- Funke, Michael, 2001.
"Money demand in Euroland,"
Journal of International Money and Finance,
Elsevier, vol. 20(5), pages 701-713, October.
- Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
- Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier.
- Dreger, Christian & Wolters, Jürgen, 2010. "Investigating M3 money demand in the euro area," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 111-122, February.
- E.M. Bosker, 2003. "Eurozone money demand: time series and dynamic panel results," WO Research Memoranda (discontinued) 750, Netherlands Central Bank, Research Department.
- Arnold, Ivo J. M. & de Vries, Casper G., 2000. "Endogeneity in European money demand," European Journal of Political Economy, Elsevier, vol. 16(4), pages 587-609, November.
- Calza, Alessandro & Sousa, João, 2003. "Why has broad money demand been more stable in the euro area than in other economies? A literature review," Working Paper Series 0261, European Central Bank.
- Joaquim Vieira Ferreira Levy & Alessandro Calza & Dieter Gerdesmeier, 2001. "Euro Area Money Demand: Measuring the Opportunity Costs Appropriately," IMF Working Papers 01/179, International Monetary Fund.
- Feige, Edgar L & Swamy, P A V B, 1974. "A Random Coefficient Model of the Demand for Liquid Assets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 241-52, May.
- Lemke, Wolfgang & Greiber, Claus, 2005. "Money demand and macroeconomic uncertainty," Discussion Paper Series 1: Economic Studies 2005,26, Deutsche Bundesbank, Research Centre.
- Zenon Kontolemis G., 2002. "Money Demand in the Euro Area: Where Do We Stand (Today)?," IMF Working Papers 02/185, International Monetary Fund.
- Bosker, E.M., 2006. "On the aggregation of eurozone data," Economics Letters, Elsevier, vol. 90(2), pages 260-265, February.
- Warne, Anders & Bruggeman, Annick & Donati, Paola, 2003. "Is the demand for euro area M3 stable?," Working Paper Series 0255, European Central Bank.
- Jan Gottschalk, 1999. "A Cointegration Analysis of a Money Demand System in Europe," Kiel Working Papers 902, Kiel Institute for the World Economy.
- Bruggeman, Annick, 2000. "The Stability of EMU-Wide Money Demand Functions and the Monetary Policy Strategy of the European Central Bank," Manchester School, University of Manchester, vol. 68(2), pages 184-202, March.
- Gandolfi, Arthur E & Lothian, James R, 1976. "The Demand for Money from the Great Depression to the Present," American Economic Review, American Economic Association, vol. 66(2), pages 46-51, May.
- Frauke Dobnik, 2011. "OLong-run Money Demand in OECD Countries – Cross-Member Cointegration," Ruhr Economic Papers 0237, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.