Monetary dynamics in the euro area: a disaggregate panel approach

John Liu (liuyuan5202@gmail.com) and Clemens Kool

No 17-14, Working Papers from Utrecht School of Economics

Abstract: In this paper, we use panel cointegration estimation to analyze the determinants of heterogeneous monetary dynamics in ten euro area member countries over the period 1999-2013. In particular, we investigate the role of real house prices, real equity prices and cross border bank credit. For the period up till 2008 we find a significantly positive income effect, a significantly negative interest rate effect, a significantly negative effect of net foreign credit and a significantly positive housing price effect. Inclusion of the financial crisis shows evidence of a structural break in money demand and some sign reversals, most significantly so for the interest rate effect. Finally, we find evidence of a divide in the long-term money demand relation between the Northern and Southern parts of the euro area, potentially complicating monetary policy.

Keywords: money demand stability; structural breaks; panel cointegration; DOLS; asset prices; net foreign credit (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:use:tkiwps:1714

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