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

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

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. Keywords: Euro area money demand, inflation forecasts, monetary policy, portfolio allocation JEL classification: E41, E44, E52, G11, G15

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 432.

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Date of creation: 2012
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Handle: RePEc:igi:igierp:432

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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, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 373, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. 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, Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
  3. Seitz, Franz & Schmidt, Markus A., 2014. "Money in modern macro models: A review of the arguments," OTH im Dialog: Weidener Diskussionspapiere, University of Applied Sciences Amberg-Weiden (OTH) 37, University of Applied Sciences Amberg-Weiden (OTH).
  4. Matteo Barigozzi & Antonio Conti, 2010. "On the Sources of Euro Area Money Demand Stability. A Time-Varying Cointegration Analysis," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2010-022, ULB -- Universite Libre de Bruxelles.
  5. Matteo Barigozzi & Antonio Conti, 2013. "On the Stability of Euro Area Money Demand and its Implications for Monetary Policy," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2013/11, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  6. Frauke Dobnik, 2011. "OLong-run Money Demand in OECD Countries – Cross-Member Cointegration," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0237, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Christian Dreger & Jürgen Wolters, 2009. "Liquidity and Asset Prices: How Strong Are the Linkages?," Working Paper / FINESS, DIW Berlin, German Institute for Economic Research 7.4A, DIW Berlin, German Institute for Economic Research.
  8. Frauke Dobnik, 2013. "Long-run money demand in OECD countries: what role do common factors play?," Empirical Economics, Springer, Springer, vol. 45(1), pages 89-113, August.
  9. repec:diw:diwfin:diwfin07041 is not listed on IDEAS
  10. Arratibel, Olga & Kamps, Christophe & Leiner-Killinger, Nadine, 2009. "Inflation forecasting in the new EU Member States," Working Paper Series, European Central Bank 1015, European Central Bank.
  11. 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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