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The Transactions Demand for Money in Chile

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  • Christopher Adam

Abstract

This paper examines the transactions demand for money in Chile over the period from 1986 to 2000. Using systems cointegration methods suggested by Johansen (1995), we find that although macroeconomic data for Chile exhibit strong trend-stationarity during this period it is possible to recover relatively robust single-equation specifications for the transactions demand for money. Error-correction models in which money demand is conditioned on real wealth, the level of economic activity, and the nominal Central Bank policy rate provide robust basis for inference. Controlling for a shift in velocity at the end of 1998 the models exhibit a high-degree of out-of-sample predictive power over the period from 1998 to mid 2000.

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Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 3 (2000)
Issue (Month): 3 (December)
Pages: 33-53

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Handle: RePEc:chb:bcchec:v:3:y:2000:i:3:p:33-53

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  1. Jose De Gregorio & Peter Wickham & Patricio Arrau & Carmen Reinhart, 1991. "The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation," IMF Working Papers 91/45, International Monetary Fund.
  2. Bennett T. McCallum & Marvin S. Goodfriend, 1987. "Money: Theoretical Analysis of the Demand for Money," NBER Working Papers 2157, National Bureau of Economic Research, Inc.
  3. Barr, D G & Cuthbertson, Keith, 1991. "Neoclassical Consumer Demand Theory and the Demand for Money," Economic Journal, Royal Economic Society, vol. 101(407), pages 855-76, July.
  4. Easterly, William R & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1995. "Money Demand and Seigniorage-Maximizing Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 583-603, May.
  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
  7. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, October.
  8. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
  9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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Cited by:
  1. Raimundo Soto M. & Matías Tapia G., 2000. "Seasonal Cointegration in Money Demand," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(3), pages 57-71, December.
  2. Verónica Mies M. & Raimundo Soto M., 2000. "Money Demand: Theory, Evidence, Results," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(3), pages 5-32, December.

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