Household money demand: The euro area case

Abstract

Summary In this paper we analyse household holdings of the broad monetary aggregate M3 in the euro area from 1991 until 2010. We develop a nominal model with satisfactory economic and statistical properties. The main determinants are a transactions variable, wealth considerations, opportunity costs and uncertainty. The model is robust to different samples considered and a multitude of mis-specification tests. The exercise also provides insights that go beyond the portfolio allocation decision of households. According to our analysis, it is quite apparent that in equilibrium, households jointly determine consumption and broad money holdings both influenced by wealth as well as interest rates.

Money demand during crisis – (post) transitional perspective

“…Another reason for relatively high income elasticity might be due to not including all possible wealth variables in our specification. Specifically, inclusion of wealth variables usually decreases the estimated income elasticity (Dobnik, 2013;Seitz and Landesberger, 2012), although this finding is also based on the analysis of advanced economies. Indeed, Kumar (2014) argues that, since per capita wealth in developing countries is low, the effects on income elasticity may not be as large as in advanced economies.…”