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Tests of Functional Forms, Currency Substitution, and Capital Mobility of Czech Money Demand Function

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  • Yu Hsing
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    Abstract

    The demand for real M2 in the Czech Republic is positively influenced by real output and negatively associated with the deposit rate, the koruna/euro exchange rate, and the euro interest rate. The coefficient of real output for the demand for real M1 is insignificant. Hence, depreciation of the koruna or a higher euro interest rate would help raise Czech real output. The Box-Cox transformation test shows that the log-linear form for real M1 and M2 demand cannot be rejected at the 5% level while the linear form for real M1 and M2 demand can be rejected at the 5% level. The CUSUM and CUSUMSQ tests show that parameters in the demand for both real M1 and M2 demand are stable. In comparison, real M2 is a better monetary aggregate.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2006 (2006)
    Issue (Month): 4 ()
    Pages: 291-299

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    Handle: RePEc:prg:jnlpep:v:2006:y:2006:i:4:id:289:p:291-299

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    Related research

    Keywords: wealth effect; stability tests; currency substitution; cost of borrowing effect; capital mobility effect; Box-Cox transformation;

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    References

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