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Money Demand in a High Inflation Economy: The Case of Israel

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  • Yashiv, Eran

Abstract

Money demand plays a central role in recent models of rapid inflation and stabilization which are highly relevant to the Israeli economy. This paper uses co-integration analysis to estimate money demand in Israel. We find that money demand shifted at the beginning of the 1980s, probably as a result of increased use of liquid indexed assets which provide protection against high inflation. In the previous two decades the equation was a fairly conventional 'U.S.-type' logarithmic function. In the last decade the equation has had a lower constant and has exhibited less sensitivity to interest rate changes. In both periods the nominal rate of interest and real private consumption have been co-integrated with real M1 balances, and interest elasticity has been less than unity. Copyright 1994 by MIT Press.

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Bibliographic Info

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

Volume (Year): 76 (1994)
Issue (Month): 1 (February)
Pages: 186-91

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Handle: RePEc:tpr:restat:v:76:y:1994:i:1:p:186-91

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

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Cited by:
  1. Reinhart, Carmen & Arrau, Patricio & DeGregorio, Jose & Wickham, Peter, 1991. "The demand for money in developing countries: Assessing the role of financial innovation," MPRA Paper 13691, University Library of Munich, Germany.
  2. Wankeun Oh, 2002. "Cointegration and Structural Change: An Application to the U.S. Demand for Money," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 91-101, January.
  3. Ayadi, Rym & Arbak, Emrah & Ben-Naceur, Sami & De Groen, Willem Pieter, 2013. "Determinants of Financial Development across the Mediterranean," CEPS Papers 7770, Centre for European Policy Studies.

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