No. 162 - Monetary Aggregates and Monetary Policy Coordination on the Way to Economic and Monetary Union: the Role of Cross-Border Deposits

After analysing the pattern of cross-border deposits (CBDs) in the EEC countries in the eighties, the paper constructs and compares three hypothetical national monetary aggregates which include CBDs in a consistent fashion, for Germany, France and Italy, and some measures of the EEC-wide money supply; it then carries out an empirical comparison, for Germany and France, between traditional and hypothetical "extended" monetary aggregates in terms of their relationship with nominal income. Reflecting a number of structural and regulatory factors, CBDs have grown very fast in most countries but at an uneven pace so that the "extended" and traditional aggregates have evolved differently. The empirical analysis suggests that in the case of France over the 1979-1990 period all the definitions of money "help" to predict the future evolution of nominal income to roughly the same extent. In the case of Germany, over the 1979-1989 period the "extended" definitions did not perform better than the traditional one; when 1990 is included in the sample, no definition of money is found to Granger-cause nominal income.