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Money Demand Stability And Inflation Prediction In The Four Largest Emu Countries

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  • Kai Carstensen
  • Jan Hagen
  • Oliver Hossfeld
  • Abelardo Salazar Neaves

Abstract

In this paper we analyze the money demand functions of the four largest EMU countries and of the four-country (EMU-4) aggregate. We identify reasonable and stable money demand relationships for Germany, France and Spain as well as the EMU-4 aggregate. For the case of Italy, results are less clear. From the estimated money demand functions, we derive both EMU-4 and country-specific measures of money overhang. We find that the EMU-4 overhang measure strongly correlates with the countryspecific measures, particularly since the start of EMU, and is useful to predict country-specific inflation. However, it generally does not encompass country-specific money overhang measures as predictors of inflation. Hence, aggregate money overhang is an important, but by far not an exhaustive, indicator fort he disaggregate level

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Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 56 (2009)
Issue (Month): 1 (02)
Pages: 73-93

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Handle: RePEc:bla:scotjp:v:56:y:2009:i:1:p:73-93

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Cited by:
  1. Ralph Setzer & Guntram B. Wolff, 2009. "Money demand in the euro area: new insights from disaggregated data," European Economy - Economic Papers 373, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Gebhard Kirchgässner & Jürgen Wolters, 2010. "The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(I), pages 221-253, March.
  3. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
  4. Christian Dreger & Jürgen Wolters, 2013. "Money demand and the role of monetary indicators in forecasting euro area inflation," FIW Working Paper series 119, FIW.

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