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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

Suggested Citation

  • Roberto A. De Santis & Carlo A. Favero & Barbara Roffia, 2012. "Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability," Working Papers 432, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:432
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    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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