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

Kai Carstensen (), Jan Hagen, Oliver Hossfeld and Abelardo Salazar Neaves

No Ifo Working Paper No. 61, Ifo Working Paper Series from Ifo Institute for Economic Research at the University of Munich

Abstract: In this paper we analyze the money demand functions of the four largest EMU countriesand of the four-country (EMU-4) aggregate. We identify reasonable and stable moneydemand 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 thatthe EMU-4 overhang measure strongly correlates with the country-specific 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 measuresas predictors of inflation. Hence, aggregate money overhang is an important, but by farnot an exhaustive, indicator for the disaggregate level.

Keywords: Money demand; stability; money overhang; inflation forecast (search for similar items in EconPapers)
JEL-codes: E41 E52 (search for similar items in EconPapers)
Date: 2008
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Related works:
Working Paper: Money Demand Stability and Inflation: Prediction in the Four Largest EMU Countries (2008)
Journal Article: MONEY DEMAND STABILITY AND INFLATION PREDICTION IN THE FOUR LARGEST EMU COUNTRIES (2009)
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