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Money Demand and the Role of Monetary Indicators in Forecasting Euro Area Inflation

Referierte Aufsätze Web of Science

Christian Dreger, Jürgen Wolters

In: International Journal of Forecasting 30 (2014), 2, S. 303-312


This paper examines the stability of money demand and the forecasting performances of a broad monetary aggregate (M3), excess liquidity and excess inflation in predicting euro area inflation. The out-of sample forecasting performances are compared to a widely used alternative, the spread of interest rates. The results indicate that the evolution of M3 is still in line with money demand, even when observations from the economic and financial crisis are included. Both excess measures and the spread are useful for predicting inflation.