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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 countriesand of the four-country (EMU-4) aggregate. We identify reasonable and stable moneydemand 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 thatthe EMU-4 overhang measure strongly correlates with the country-specific 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 measuresas predictors of inflation. Hence, aggregate money overhang is an important, but by farnot an exhaustive, indicator for the 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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Citations

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Cited by:
  1. Christian Dreger & Jürgen Wolters, 2010. "Money Demand and the Role of Monetary Indicators in Forecasting Euro Area Inflation," Discussion Papers of DIW Berlin 1064, DIW Berlin, German Institute for Economic Research.
  2. Gebhard Kirchgässner & Jürgen Wolters, 2009. "The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank," CREMA Working Paper Series 2009-30, Center for Research in Economics, Management and the Arts (CREMA).
  3. Setzer, Ralph & Wolff, Guntram B., 2009. "Money demand in the euro area: new insights from disaggregated data," MPRA Paper 17483, University Library of Munich, Germany.
  4. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? – Cointegrated VAR versus Single Equation Techniques," Ruhr Economic Papers 0171, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Clemens Kool & Erik de Regt & Tom van Veen, 2013. "Money Overhang, Credit Overhang and Financial Imbalances in the Euro Area," CESifo Working Paper Series 4476, CESifo Group Munich.

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