Journal Article

Money Demand Stability and Inflation: Prediction in the Four Largest EMU Countries

Scottish Journal of Political Economy

In this paper we analyze money demand in the four largest EMU countries.

In addition, we study a four-country (EMU-4) aggregate. We identify

reasonable money demand relationships for Germany, France and Spain as

well as the EMU-4 aggregate. The long-run relationships identified display

considerable degrees of stability. For the case of Italy, results are less clear.

Based on the estimated money demand functions, we calculate measures of

money overhang. We find that analysis at the aggregate level is appropriate

in so far as EMU-4 money overhang is a good indicator of country-specific

money overhang. Moreover, aggregate as well as country-specific measures

are useful for predicting future inflation.


Kai Carstensen
Jan Hagen
Oliver Hossfeld
Abelardo Salazar Neaves


Publication Date
JEL Classification
E41, E52