This paper compares different forecasting approaches for the Argentine monetary aggregate M2, which is a key variable for monetary policy. First, we estimate a conditional equilibrium-correction model of money demand, which is theory consistent and accounts for the main features of the data....

We show that when the money demand function used to estimate the size of the shadow economy includes the lagged dependent variable, the need to assume a known initial condition reappears as it was the case in the early monetary methods.