Kiel Working Papers, Kiel Institute for World Economics
No 1443:
Money Demand Stability and Inflation: Prediction in the Four Largest EMU Countries
Abelardo Salazar Neaves, Oliver Hossfeld, Jan Hagen and Kai Carstensen
Abstract: 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
Keywords: Money demand, stability, money overhang, inflation forecast; (follow links to similar papers)
JEL-Codes: E41,; E52; (follow links to similar papers)
47 pages, January 2008
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