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

Publication Date

23/05/2012

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Abstract

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.