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

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

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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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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