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

  • Setzer, Ralph
  • van den Noord, Paul
  • Wolff, Guntram B.

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.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 27 (2011)
Issue (Month): 4 ()
Pages: 764-780

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Handle: RePEc:eee:poleco:v:27:y:2011:i:4:p:764-780
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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