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.