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

Listed author(s):
  • Roberto A. De Santis
  • Carlo A. Favero
  • Barbara Roffia

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
Handle: RePEc:igi:igierp:432
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