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Money Demand in an Open Transition Economy

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  • LUBO KOMREK
  • MARTIN MELECK

Abstract

This article offers an internationalized view of the demand for money as applied to the Czech Republic. The traditional money demand function, consisting purely of domestic variables, is extended to include certain foreign determinants that likely affect the demand for money in a small open transition economy. In this respect, both narrow and broad money are considered. Several estimation techniques, DOLS, DGLS, the Johansen method, and ARDL, are applied to increase robustness of the results acquired. The stability of the estimates obtained is tested to study changes in the estimated relations during the transition period. Finally, estimates of the possible effects of money market disequilibria on prices and output are presented. The results suggest that international variables are significant mainly in the context of broad money demand and that liquidity gaps significantly influence prices and output dynamics.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Eastern European Economics.

Volume (Year): 42 (2004)
Issue (Month): 5 (September)
Pages: 73-73

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Handle: RePEc:mes:eaeuec:v:42:y:2004:i:5:p:73-73

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=106044

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  1. Aarle, B. van & Budina, N., 1995. "Currency substitution in Eastern Europe," Discussion Paper 1995-2, Tilburg University, Center for Economic Research.
  2. Bas van Aarle & Nina Budina, 1997. "Currency Substitution in Eastern Europe," Politick√° ekonomie, University of Economics, Prague, vol. 1997(2), pages 171-182.
  3. Muscatelli, V. Anton & Spinelli, Franco, 2000. "The long-run stability of the demand for money: Italy 1861-1996," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 717-739, June.
  4. Brian M. Doyle, 2000. ""Here, dollars, dollars ..."estimating currency demand and worldwide currency substitution," International Finance Discussion Papers 657, Board of Governors of the Federal Reserve System (U.S.).
  5. Scott Hendry, 1995. "Long-Run Demand for M1," Macroeconomics 9511001, EconWPA.
  6. Sprenkle, C M & Miller, M H, 1980. "The Precautionary Demand for Narrow and Broad Money," Economica, London School of Economics and Political Science, vol. 47(188), pages 407-21, November.
  7. Gomis-Porqueras, Pere & Serrano, Carlos & Somuano, Alejandro, 2000. "Currency substitution in Latin America - lessons from the 1990s," Policy Research Working Paper Series 2340, The World Bank.
  8. 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.
  9. Josef Arlt & Milan Guba & Stepan Radkovsky & Milan Sojka & Vladimir Stiller, 2001. "Influence of Selected Factors on the Demand for Money 1994-2000," Archive of Monetary Policy Division Working Papers 2001/30, Czech National Bank.
  10. Juan Luis Vega, 1998. "Money demand stability: Evidence from Spain," Empirical Economics, Springer, vol. 23(3), pages 387-400.
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Cited by:
  1. Robert Tchaidze & Salome Tvalodze, 2011. "Deposit Formation in Georgia," IMF Working Papers 11/78, International Monetary Fund.

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