GERMAN INSTITUTES WARN ON MONEY SUPPLY Four of West Germany's five leading economic research institutes warned that excessive monetary growth threatened a resurgence of inflation. But in a dissenting view the DIW institute in West Berlin, echoing recent statements by leading Bundesbank officials, said the expansion seen over the last 1-1/2 years did not necessarily threaten stability. The five institutes issued a joint spring report, in which three -- Kiel, Hamburg and Essen -- forecast a two pct rise in GNP in 1987, while West Berlin and Munich predicted one pct. The four institutes said an expansive policy was welcome in view of the slowdown in economic activity. But experience has shown that strong monetary growth eventually leads to a price rise which undoes the beneficial effects of monetary policy. Given virtual zero inflation in West Germany such fears may seem exaggerated, they said. "But it has often turned out in the past that the price climate can quickly deteriorate, forcing the central bank into a restrictive policy," they said. The economic costs of a preventive stability policy are less than fighting inflation once it has taken hold, they said. The four institutes disputed the view that monetary expansion would slow of its own accord in 1987 as domestic investors switch liquidity into longer term capital market investments following lower interest rates. "Such redispositions may temporarily dampen the expansion of central bank money stock, but do not automatically lead to a smaller expansion of money supply," they said. A return to growth and stability did not require spectacular central bank moves, but could be done quietly with open market operations and repurchase pacts, which would avoid an interest rate rise by dampening inflationary expectations. The DIW institute said monetary policy should not be focused simply on growth of production potential. Because of uncertainty about exchange rate developments and economic weakness other factors should be taken into account. Monetary policy should aim for further interest rate cuts and avoid rises to boost the economy and discourage revaluation speculation. Recent strong monetary expansion was not a threat in itself to price stability. The 1979/81 inflation following strong 1977/78 money growth reflected other causes, such as rising oil prices and the falling mark.