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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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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2010,04.

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Date of creation: 2010
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Handle: RePEc:zbw:bubdp1:201004
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