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Money Demand and Exchange Rate Determination under Hyperinflation: Conceptual Issues and Evidence from Yugoslavia

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  • Petrovic, Pavle
  • Mladenovic, Zorica
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    Abstract

    A modified monetary model of exchange rate determination is advanced and tested for the Yugoslav hyperinflation of 1992-94, stating that the exchange rate is determined directly in the money market thus implying that private agents, due to "dollarization", denominate their real money holdings in foreign currency. Empirical evidence supports the advanced model. Apart from the last seven months of the Yugoslav hyperinflation, the exact RE present value model of the exchange rate is accepted, while that of the price level is rejected. For the whole period of hyperinflation the modified money demand schedule, with money holdings denominated in foreign currency, is nonlinear with decreasing semielasticity of money demand.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 32 (2000)
    Issue (Month): 4 (November)
    Pages: 785-806

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    Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:4:p:785-806

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Alexandre Sokic, 2007. "Monetary hyperinflations, speculative hyperinflations and modelling the use of money," Working Papers of BETA 2007-05, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Engsted, Tom, 2002. "Misspecification versus bubbles in hyperinflation data: Comment," Finance Working Papers 02-2, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    3. Alexandre Sokic, 2012. "The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money," German Economic Review, Verein für Socialpolitik, vol. 13(2), pages 142-160, 05.
    4. Zorica Mladenovic & Bent Nielsen, 2009. "The role of income in money demand during hyper-inflation: the case of Yugoslavia," Economics Papers 2009-W02, Economics Group, Nuffield College, University of Oxford.
    5. Nikolay Nenovsky, 2009. "Monetary Regimes in Post-Communist Countries. Some Long-Term Reflections," Working paper series 12009en, Agency for Economic Analysis and Forecasting.
    6. Chen, Show-Lin & Tsai, Li-Ju & Wu, Jyh-Lin, 2004. "A revisit to liquidity effects--evidence from a non-linear approach," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 501-517, September.
    7. Stefka Slavova, 2003. "Money demand during hyperinflation and stabilization: Bulgaria, 1991-2000," Applied Economics, Taylor and Francis Journals, vol. 35(11), pages 1303-1316.
    8. Milojko Arsić & Zorica Mladenović & Pavle Petrović, 2001. "Macroeconomic Stabilization in the FRY," The wiiw Balkan Observatory Working Papers 009, The Vienna Institute for International Economic Studies, wiiw.

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