ERM Money Supplies and the Transition to EMU

By Paul R Masson, Marcel Cassard, Timothy D. Lane

January 1, 1994

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Paul R Masson, Marcel Cassard, and Timothy D. Lane ERM Money Supplies and the Transition to EMU, (USA: International Monetary Fund, 1994) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Stage 2 of monetary union in the Europe is to involve greater monetary cooperation; the paper examines the case for using the M3 money supply aggregated across “core ERM” countries- -those with low inflation and absence of realignments- -as a vehicle for that cooperation. First, the existence of a satisfactory long-run money demand relationship and short-run dynamic equation is verified. The resulting demand equations have at least as satisfactory econometric properties as those for France and Germany separately. Second, the predictive power of the core-ERM aggregate relative to French and German inflation is examined; it is shown that the aggregate helps to predict German inflation, over and above the predictive power of German M3. Thus, core-ERM M3 has value as an indicator for the anchor country in hitting its own domestic objective, quite separate from any concern about economic developments in neighboring countries.

Subject: Demand for money, Inflation, Monetary aggregates, Monetary base, Money, National accounts, Personal income, Prices

Keywords: Aggregate ERM money supply, Demand for money, Deutsche mark, ERM money demands, Europe, Inflation, Monetary aggregates, Monetary base, Money demand, Money demand equation, Personal income, Price level, Standard error, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/001
Stock No:

WPIEA0011994
ISBN:

9781451841565
ISSN:

1018-5941

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