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Money demand in the czech republic since transition

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  • Keith Cuthbertson
  • Don Bredin

Abstract

We analyse the demand for money since the “break up” of the Czech-Slovak Republics at the beginning of 1993 and for the aggregates M0, Ml, and M2 using monthly data. Due to the widespread use of foreign currency in formally centrally planned economies, we also investigate the issue of currency substitution. Because of our relatively small sample period the Johansen cointegration approach is not used and instead we use the general to specific methodology in a single equation framework. Previous empirical evidence on money demand in Eastern Europe, and specifically Czech Republic, has been mixed. Both graphical and empirical results suggest that any currency substitution was a one-off event due to increased uncertainty at the end of 1992 at the time of the monetary dissolution. Certainly, currency substitution in the Czech Republic is not as strong as has been found in other former centrally planned economies. However, our results do indicate that Czech National Bank may have to take account of foreign interest rates when interpreting movements in the monetary aggregates.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 4 (2001)
Issue (Month): 4 ()
Pages: 271-290

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Handle: RePEc:taf:jpolrf:v:4:y:2001:i:4:p:271-290

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Related research

Keywords: Demand for Money; Currency Substitution; Error Correction Model;

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References

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  1. Abdur Chowdhury, 1997. "The financial structure and the demand for money in Thailand," Applied Economics, Taylor & Francis Journals, vol. 29(3), pages 401-409.
  2. M. Funke & S. Hall & M. Solá, 1993. "Rational bubbles during Polland’s hiperinflation: implications and empirical evidence," Documentos de Trabajo (working papers) 1193, Department of Economics - dECON.
  3. Peter C.B. Phillips, 1988. "Optimal Inference in Cointegrated Systems," Cowles Foundation Discussion Papers 866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
  4. Corbett, Jennifer & Mayer, Colin, 1991. "Financial Reform in Eastern Europe: Progress With the Wrong Model," CEPR Discussion Papers 603, C.E.P.R. Discussion Papers.
  5. Pablo Guidotti & Carlos A. Rodríguez, 1992. "Dollarization in Latin America: Gresham's Law in Reverse?," CEMA Working Papers: Serie Documentos de Trabajo. 81, Universidad del CEMA.
  6. Charemza, Wojciech W., 1996. "Detecting stochastic bubbles on an East European foreign exchange market: An estimation/simulation approach," Structural Change and Economic Dynamics, Elsevier, vol. 7(1), pages 35-53, March.
  7. Clements, Benedict & Schwartz, Gerd, 1993. "Currency substitution: The recent experience of Bolivia," World Development, Elsevier, vol. 21(11), pages 1883-1893, November.
  8. Charemza, Wojciech W & Ghatak, Subrata, 1990. "Demand for Money in a Dual-Currency, Quantity-Constrained Economy: Hungary and Poland, 1956-1985," Economic Journal, Royal Economic Society, vol. 100(403), pages 1159-72, December.
  9. McKinnon, Ronald I, 1982. "Currency Substitution and Instability in the World Dollar Standard," American Economic Review, American Economic Association, vol. 72(3), pages 320-33, June.
  10. Katerina Smidkova, 2003. "The Emergence of Financial Markets in Transition: The Czech Experience," Macroeconomics 0304005, EconWPA.
  11. Jan Klacek & Kateřina Šmídková, 1995. "The Demand-for-money Function," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 2(2).
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Citations

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Cited by:
  1. Yu Hsing, 2006. "Tests of Functional Forms, Currency Substitution, and Capital Mobility of Czech Money Demand Function," Prague Economic Papers, University of Economics, Prague, vol. 2006(4), pages 291-299.
  2. Dumitru, Ionut, 2002. "Money Demand in Romania," MPRA Paper 10629, University Library of Munich, Germany.
  3. Jordan Kjosevski, 2013. "The determinants and stability of money demand in the Republic of Macedonia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 31(1), pages 35-54.
  4. repec:hal:journl:hal-00270544 is not listed on IDEAS
  5. Fischer, Björn & Köhler, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 0330, European Central Bank.
  6. repec:hal:cesptp:hal-00270544 is not listed on IDEAS
  7. Lazea, Valentin & Cozmanca, Bogdan Octavian, 2003. "Currency substitution in Romania," MPRA Paper 19813, University Library of Munich, Germany.
  8. Andreea Andronescu & Hassan Mohammadi & James Payne, 2004. "Long-run estimates of money demand in Romania," Applied Economics Letters, Taylor & Francis Journals, vol. 11(14), pages 861-864.

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