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

Conventional money demand speci¯cations in the euro area have become unstable since 2001. We show that the income elasticity as well as the interest rate semi-elasticity actually remain stable, the corresponding deep parameters of the utility function have not changed. This suggests to closely monitor mon-etary developments as they cannot easily be explained by changing preferences for holding money but might actually be a sign of imbalances. Our money demand equation is speci¯ed in deviations of individual euro area Member States variables from the euro area average