DP8957 Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability

Author(s): Roberto A De Santis, Carlo A. Favero, Barbara Roffia
Publication Date: May 2012
Keyword(s): Euro area money demand, inflation forecasts, monetary policy, portfolio allocation
JEL(s): E4, E44
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8957

This paper argues that a stable broad money demand for the euro area over the period 1980-2011 can be obtained by modelling cross border international portfolio allocation. As a consequence, model-based excess liquidity measures, namely the difference between actual M3 growth (net of the inflation objective) and the expected money demand trend dynamics, can be useful to predict HICP inflation.