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Financial Innovation and Money Demand: Application to Chile and Mexico

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  • Arrau, Patricio
  • De Gregorio, Jose

Abstract

This paper reexamines one estimation of money demand equations using quarterly data for Chile and Mexico. The authors find no evidence of cointegration of traditional long-run money demand equations. In light of this evidence, they argue that there is an important permanent component of the demand for money not captured by traditional variables (interest rates and income). The authors call this phenomenon financial innovation and they include it in the traditional specification by assuming that it follows a random walk. Copyright 1993 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 75 (1993)
Issue (Month): 3 (August)
Pages: 524-30

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Handle: RePEc:tpr:restat:v:75:y:1993:i:3:p:524-30

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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Cited by:
  1. Choudhry Taufiq, 2002. "Financial Innovations And Demand For United States M1 And M2 Components," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 73-93.
  2. Brissimis, Sophocles N. & Garganas, Eugenie N. & Hall, Stephen G., 2012. "Consumer credit in an era of financial liberalisation: An overreaction to repressed demand?," MPRA Paper 41819, University Library of Munich, Germany.
  3. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen & Wickham, Peter, 1991. "The demand for money in developing countries : assessing the role of financial innovation," Policy Research Working Paper Series, The World Bank 721, The World Bank.
  4. Jose Sanchez-Fung, 2004. "Inflation targeting and monetary analysis in Chile and Mexico," Money Macro and Finance (MMF) Research Group Conference 2003, Money Macro and Finance Research Group 82, Money Macro and Finance Research Group.
  5. L. Arnaut, Javier, 2008. "Demanda de dinero y liberalizacion financiera en Mexico: Un enfoque de cointegracion
    [Money demand and financial liberalization in Mexico: A cointegration approach]
    ," MPRA Paper 8680, University Library of Munich, Germany.
  6. repec:pra:mprapa:40579 is not listed on IDEAS
  7. Raimundo Soto M. & Matías Tapia G., 2000. "Seasonal Cointegration in Money Demand," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 3(3), pages 57-71, December.
  8. Raimundo Soto, . "Nonlinearities in the Demand for money: A Neural Network Approach," ILADES-Georgetown University Working Papers, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines inv107, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  9. Verónica Mies M. & Raimundo Soto M., 2000. "Money Demand: Theory, Evidence, Results," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 3(3), pages 5-32, December.
  10. Loviscek, Anthony L., 1996. "Seigniorage and the Mexican financial crisis," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 36(1), pages 55-64.

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