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Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability

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  • Favero, Carlo A.
  • De Santis, Roberto A
  • Roffia, Barbara

Abstract

This paper argues that a stable broad money demand for the euro area over the period 1980-2011 can be obtained by modelling cross border international portfolio allocation. As a consequence, model-based excess liquidity measures, namely the difference between actual M3 growth (net of the inflation objective) and the expected money demand trend dynamics, can be useful to predict HICP inflation.

Suggested Citation

  • Favero, Carlo A. & De Santis, Roberto A & Roffia, Barbara, 2012. "Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability," CEPR Discussion Papers 8957, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8957
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    More about this item

    Keywords

    Euro area money demand; Inflation forecasts; Monetary policy; Portfolio allocation;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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