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Euro area money demand and international portfolio allocation: A contribution to assessing risks to price stability

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  • De Santis, Roberto A.
  • Favero, Carlo A.
  • Roffia, Barbara

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.

Suggested Citation

  • De Santis, Roberto A. & Favero, Carlo A. & Roffia, Barbara, 2013. "Euro area money demand and international portfolio allocation: A contribution to assessing risks to price stability," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 377-404.
    • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:377-404
    DOI: 10.1016/j.jimonfin.2012.04.012
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    More about this item

    Keywords

    Euro area money demand; Inflation forecasts; Monetary policy; Portfolio allocation;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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