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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

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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File URL: http://ec.europa.eu/economy_finance/publications/economic_paper/2010/pdf/ecp407_en.pdf
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Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 407.

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Length: 30 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:euf:ecopap:0407
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