In a Bank for International Settlements working paper "Money and inflation in the Euro Area: A case for monetary indicators?" Stefan Gerlach and Lars E O Svensson find that the "real money gap" (the gap between current real balances and long-run equilibrium real balances), has substantial predictive power for future inflation. In fact, it is much better than the current Eurosystem's money-growth indicator (the gap between current M3 growth and a reference value).

Abstract for working paper No