Money demand stability and inflation prediction in the four largest EMU countries

by Kai Carstensen; Jan Hagen; Oliver Hossfeld; Abelardo Salazar Neaves

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. -- Money demand ; stability ; money overhang ; inflation forecast

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Year of publication:	Jan. 2008
Authors:	Carstensen, Kai ; Hagen, Jan U. ; Hossfeld, Oliver ; Salazar Neaves, Abelardo
Publisher:	Kiel : Kiel Inst. for the World Economy
Subject:	Geldnachfrage \| Money demand \| Schätzung \| Estimation \| Geldmenge \| Money supply \| Monetärer Indikator \| Monetary indicator \| Inflation \| Eurozone \| Euro area \| Deutschland \| Germany \| Frankreich \| France \| Spanien \| Spain \| Italien \| Italy