## ERM Money Supplies and the Transition to EMU

_IMF Working Papers, January 1, 1994_

## Source details

**Canonical URL:** [ERM Money Supplies and the Transition to EMU](https://www.imf.org/en/publications/wp/issues/2016/12/30/erm-money-supplies-and-the-transition-to-emu-1229)

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## Bibliographic details
- Authors: Paul R Masson, Marcel Cassard, Timothy D. Lane
- Published: January 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451841565.001

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### Overview
- Stage 2 of monetary union in the Europe is to involve greater monetary cooperation.
- The paper examines using the M3 money supply aggregated across “core ERM” countries—those with low inflation and absence of realignments—as a vehicle for that cooperation.
- Authors: Paul R Masson, Marcel Cassard, Timothy D. Lane.
- Date: January 1, 1994.

### Methodology and econometric analysis
- Verification of a satisfactory long-run money demand relationship and short-run dynamic equation for the core-ERM M3 aggregate.
- Comparison of resulting demand equations’ econometric properties with those for France and Germany separately.
- Examination of the predictive power of the core-ERM aggregate relative to French and German inflation.

### Key findings
- The resulting demand equations for the core-ERM aggregate have at least as satisfactory econometric properties as those for France and Germany separately.
- The core-ERM M3 aggregate helps to predict German inflation, over and above the predictive power of German M3.
- Core-ERM M3 therefore has value as an indicator for the anchor country in hitting its own domestic objective, separate from concerns about economic developments in neighboring countries.

### Policy implications and interpretation
- Using a core-ERM aggregated M3 can serve as a vehicle for greater monetary cooperation in Stage 2 of EMU.
- The predictive relationship between core-ERM M3 and German inflation supports the use of aggregate monetary indicators in anchoring domestic inflation objectives.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/erm-money-supplies-and-the-transition-to-emu-1229_