International Economics and Economic Policy

, Volume 10, Issue 2, pp 297–315 | Cite as

Money demand in the euro area: new insights from disaggregated data

  • Ralph Setzer
  • Guntram B. Wolff
Original Paper


Conventional money demand specifications in the euro area have become unstable since 2001. We specify a money demand equation in deviations of individual euro area Member States variables from the euro area average and show that the income elasticity as well as the interest rate semi-elasticity remain stable. The corresponding deep parameters of the utility function have not changed fundamentally. Aggregate money demand instability does therefore not result from altered standard factors determining the preference for holding money. Instead, other factors determine the aggregate monetary overhang. Since monetary developments cannot easily be explained by changing preferences, they should be closely monitored as they may actually be a sign of other factors.


Money demand M3 National contributions Euro area 1999–2008 

JEL Classification

E41 E51 E52 


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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  1. 1.Directorate General Economic and Financial AffairsEuropean CommissionBrusselsBelgium
  2. 2.BruegelBrusselsBelgium

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