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Core ERM Money Demand and Effects on Inflation
Author(s) -
Cassard Marcel,
Lane Timothy D.,
Masson Paul R.
Publication year - 1997
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00040
Subject(s) - economics , inflation (cosmology) , german , aggregate demand , monetary economics , monetary policy , core (optical fiber) , predictive power , hyperinflation , core inflation , aggregate supply , macroeconomics , inflation targeting , philosophy , physics , materials science , archaeology , epistemology , theoretical physics , composite material , history
The paper presents evidence supporting the existence of a stable money demand relationship for Germany plus a core group of countries—France, Belgium, Denmark, Luxembourg and the Netherlands—that have not realigned their parities against the deutschmark since at least 1987. The predictive power of the core ERM aggregate for French and German inflation is also examined; it is shown that the ERM aggregate is a better predictor of German inflation than the German monetary aggregate alone. Thus, the ERM money supply is a useful indicator for German monetary policy, even if the latter only focuses on achieving domestic inflation targets.