hero working papers

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

Number: 432
Year: 2012
Author(s): Roberto A. De Santis, Carlo A. Favero and Barbara Roffia
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.

Keywords: Euro area money demand, inflation forecasts, monetary policy, portfolio allocation
JEL codes: E41, E44, E52, G11, G15