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Money Demand Stability and Inflation: Prediction in the Four Largest EMU Countries

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

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

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1443.

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Length: 47 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:kie:kieliw:1443

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Keywords: Money demand; stability; money overhang; inflation forecast;

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Citations

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Cited by:
  1. Gebhard Kirchgässner & Jürgen Wolters, 2009. "The Role of Monetary Aggregates in the Policy Analysis of the Swiss National Bank," University of St. Gallen Department of Economics working paper series 2009 2009-30, Department of Economics, University of St. Gallen.
  2. Christian Dreger & Jürgen Wolters, 2013. "Money demand and the role of monetary indicators in forecasting euro area inflation," FIW Working Paper series 119, FIW.
  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," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
  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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