H2-2014: Wealth prices in Euroland: The North-South Divide

Our new series of wealth prices for EMU member countries reveal a deep north-south divide within the euro area. Divergent wealth prices reinforce real economic divergence in the euro area and increase the difficulties in designing the common monetary policy. Whether EMU will survive in the long-run will therefore depend to a significant degree on the chances for convergence and divergence of asset prices and economic growth.

Recently, we introduced a wealth price index for Germany. In the present paper, we extend the analysis for Germany to other key euro area countries. Our data reveal a deep north-south divide in wealth price developments. Divergent wealth prices reinforce real economic divergence and increase the difficulties in designing the common monetary policy. Whether EMU will survive in the long-run will therefore depend to a significant degree on the chances for convergence and divergence of asset prices and economic growth. In the following section of this paper, we discuss the conceptual issues for the construction of a wealth price index and review the sources for the price data and wealth composition. Then, we present the results of our exercise. In the final section, we draw some conclusions from our analysis for future economic and policy developments.

This study is co-authored by Christopher Thiem.

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