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The demand for euros

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  • Arnold, Ivo J.M.
  • Roelands, Sebastian

Abstract

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.

Suggested Citation

  • Arnold, Ivo J.M. & Roelands, Sebastian, 2010. "The demand for euros," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 674-684, June.
    • Handle: RePEc:eee:jmacro:v:32:y:2010:i:2:p:674-684
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    5. Frauke Dobnik, 2011. "OLong-run Money Demand in OECD Countries – Cross-Member Cointegration," Ruhr Economic Papers 0237, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. BENDOB, Ali & SI MOHEMMED, Kamel, 2014. "La relation entre le taux de change parallèle et la demande de la monnaie Cas de l’Algérie durant 1980-2010: Une approche économétrique [The relationship between the parallel exchange rate and dema," MPRA Paper 76085, University Library of Munich, Germany, revised 2014.
    7. Ahmad Baharumshah & Siew-Voon Soon, 2015. "Demand for broad money in Singapore: does wealth matter?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 557-573, July.
    8. Dreger, Christian & Wolters, Jürgen, 2016. "On the Empirical Relevance of the Lucas Critique: the Case of Euro Area Money Demand," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 43(1), pages 61-82.
    9. Geoffrey R. Dunbar, 2019. "Demographics and the demand for currency," Empirical Economics, Springer, vol. 57(4), pages 1375-1409, October.
    10. Gerlach-Kristen, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "How do banking crises affect aggregate consumption? Evidence from international crisis episodes," Papers WP464, Economic and Social Research Institute (ESRI).
    11. Nicholas Apergis, 2015. "Long-run estimates of money demand: new evidence from East Asian countries and the presence of structural breaks," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3276-3291, July.
    12. Ivo J. M. Arnold, 2022. "Monetary overhang in times of covid: evidence from the euro area," Applied Economics, Taylor & Francis Journals, vol. 54(35), pages 4030-4042, July.
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