Financial Structure, Asymmetric National Money Demand Functions and the Stability of European Money Demand

Abstract

Differences in financial structure across the EMU member countries easily lead to asymmetric national money demand functions in Europe. The range of (near-money) assets offered by the national banking systems to the public and differences in the passthrough of central bank rates to deposit rates affect the portfolio allocation by the public. From the perspective of the ECB, these differences in national money demand functions are less important than the behavior of aggregate European money demand. The latter affects the choice of the monetary strategy by the ECB.