Discussion paper

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

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.

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Citation

Favero, C and B Roffia (2012), ‘DP8957 Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability‘, CEPR Discussion Paper No. 8957. CEPR Press, Paris & London. https://cepr.org/publications/dp8957