EconStor >
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin >
DIW-Diskussionspapiere >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/49454
  
Title:Money demand and the role of monetary indicators in forecasting euro area inflation PDF Logo
Authors:Dreger, Christian
Wolters, Jürgen
Issue Date:2010
Series/Report no.:Discussion papers // German Institute for Economic Research 1064
Abstract:This paper examines the forecasting performance of a broad monetary aggregate (M3) in predicting euro area inflation. Excess liquidity is measured as the difference between the actual money stock and its fundamental value, the latter determined by a money demand function. The out-of sample forecasting performance is compared to widely used alternatives, such as the term structure of interest rates. The results indicate that the evolution of M3 is still in line with money demand even in the period of the financial and economic crisis. Monetary indicators are useful to predict inflation at the longer horizons, especially if the forecasting equations are based on measures of excess liquidity. Due to the stable link between money and inflation, central banks should implement exit strategies from the current policy path, as soon as the financial conditions are expected to return to normality.
Subjects:Money demand
excess liquidity
money and inflation
JEL:C22
C52
E41
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

Files in This Item:
File Description SizeFormat
667373012.pdf242.79 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/49454

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.