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Monetary dynamics in the euro area: a disaggregate panel approach

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  • J. Liu
  • C.J.M. Kool

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.

Suggested Citation

  • J. Liu & C.J.M. Kool, 2017. "Monetary dynamics in the euro area: a disaggregate panel approach," Working Papers 17-14, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:1714
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    File URL: https://dspace.library.uu.nl/bitstream/handle/1874/355653/1714.pdf
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    References listed on IDEAS

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    Keywords

    money demand stability; structural breaks; panel cointegration; DOLS; asset prices; net foreign credit;
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