The demand for euros
This 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.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Roberto Golinelli & Sergio Pastorello, 2002. "Modelling the demand for M3 in the Euro area," The European Journal of Finance, Taylor & Francis Journals, vol. 8(4), pages 371-401.
- 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.
- G. William Schwert, 1988. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
- 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 & 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," Working Paper / FINESS 7.1a, DIW Berlin, German Institute for Economic Research.
- 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.
- 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.
- 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.
- 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.
- 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.
- Michael Funke, 2001.
"Money Demand in Euroland,"
Quantitative Macroeconomics Working Papers
20112, Hamburg University, Department of Economics.
- 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.
- 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.
- 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.
- Hiroshi Fujiki & Casey B. Mulligan, 1996. "A Structural Analysis of Money Demand: Cross-Sectional Evidence from Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(2), pages 53-78, December.
- 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.
- Sala-i-Martin, X. & Mulligan, C.B., 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Papers 671, Yale - Economic Growth Center.
- Coenen, Günter & Vega, Juan Luis, 1999.
"The demand for M3 in the euro area,"
Working Paper Series
0006, European Central 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.
- Laurence Boone & Paul Noord, 2008. "Wealth effects on money demand in the euro area," Empirical Economics, Springer, vol. 34(3), pages 525-536, June.
- Sonia Munoz, 2001. "Monetary targeting in the EMU: lessons from Australia," Applied Economics Letters, Taylor & Francis Journals, vol. 8(8), pages 503-508.
- 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.
- Tom Doan, . "RATS programs to replicate Mark-Sul(2003) panel DOLS," Statistical Software Components RTZ00112, Boston College Department of Economics.
- 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.
- Andreas Fischer, 2005.
"Measuring Income Elasticity for Swiss Money Demand: What do the cantons say about financial innovation?,"
05.01, Swiss National Bank, Study Center Gerzensee.
- 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 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.
- 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.
- E.M. Bosker, 2003. "Eurozone money demand: time series and dynamic panel results," WO Research Memoranda (discontinued) 750, Netherlands Central Bank, Research Department.
- 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.
- Claus Brand & Nuno Cassola, 2004. "A money demand system for euro area M3," Applied Economics, Taylor & Francis Journals, vol. 36(8), pages 817-838.
- 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.
- 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.
- Warne, Anders & Bruggeman, Annick & Donati, Paola, 2003. "Is the demand for euro area M3 stable?," Working Paper Series 0255, European Central Bank.
- Angeloni Ignazio & Ehrmann Michael, 2007.
"Euro Area Inflation Differentials,"
The B.E. Journal of Macroeconomics,
De Gruyter, vol. 7(1), pages 1-36, August.
- Lemke, Wolfgang & Greiber, Claus, 2005. "Money demand and macroeconomic uncertainty," Discussion Paper Series 1: Economic Studies 2005,26, Deutsche Bundesbank, Research Centre.
- Bosker, E.M., 2006. "On the aggregation of eurozone data," Economics Letters, Elsevier, vol. 90(2), pages 260-265, February.
- 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.
- 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.
- 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.
- Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
- Zenon Kontolemis G., 2002. "Money Demand in the Euro Area; Where Do We Stand (Today)?," IMF Working Papers 02/185, 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.
- 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.
- 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.
- Tom Doan, . "SWDOLS: RATS procedure to estimate cointegrating vectors using dynamic OLS," Statistical Software Components RTS00207, Boston College Department of Economics.
- 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.
- Kai Carstensen, 2003. "Is European Money Demand Still Stable?," Kiel Working Papers 1179, Kiel Institute for the World Economy.
- 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.
- 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.
- Alan Ahearne & Brigit Schmitz & Jürgen von Hagen, 2007. "Current Account Imbalances in the Euro Area (draft version)," CASE Network Studies and Analyses 0345, CASE-Center for Social and Economic Research.
- 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.
- Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004. "Money Demand in theEuroArea: Do National Differences Matter?," Macroeconomics 0404019, EconWPA, revised 24 Apr 2004.
- Jan Gottschalk, 1999. "A Cointegration Analysis of a Money Demand System in Europe," Kiel Working Papers 902, Kiel Institute for the World Economy.
- 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.
- 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.
- Greiber, Claus & Setzer, Ralph, 2007. "Money and housing: evidence for the euro area and the US," Discussion Paper Series 1: Economic Studies 2007,12, Deutsche Bundesbank, Research Centre.
When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:32:y:2010:i:2:p:674-684. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.