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Money demand and the role of monetary indicators in forecasting euro area inflation

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  • Dreger, Christian
  • Wolters, Jürgen

Abstract

This paper examines the stability of money demand and the forecasting performances of a broad monetary aggregate (M3), excess liquidity and excess inflation in predicting euro area inflation. The out-of sample forecasting performances are compared to a widely used alternative, the spread of interest rates. The results indicate that the evolution of M3 is still in line with money demand, even when observations from the economic and financial crisis are included. Both excess measures and the spread are useful for predicting inflation.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 30 (2014)
Issue (Month): 2 ()
Pages: 303-312

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Handle: RePEc:eee:intfor:v:30:y:2014:i:2:p:303-312

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Web page: http://www.elsevier.com/locate/ijforecast

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Keywords: Money demand; Excess liquidity; Excess inflation; Inflation forecasts;

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Cited by:
  1. De Santis, Roberto A. & Favero, Carlo A. & Roffia, Barbara, 2008. "Euro area money demand and international portfolio allocation: a contribution to assessing risks to price stability," Working Paper Series 0926, European Central Bank.
  2. Matteo Barigozzi & Antonio Conti, 2013. "On the Stability of Euro Area Money Demand and its Implications for Monetary Policy," LEM Papers Series 2013/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  3. Dreger, Christian & Wolters, Jürgen, 2011. "Money and inflation in the euro area during the financial crisis," Discussion Papers 300, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  4. Christian Dreger & Jürgen Wolters, 2014. "Unconventional Monetary Policy and Money Demand," Discussion Papers of DIW Berlin 1382, DIW Berlin, German Institute for Economic Research.

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