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Money demand in open economies : a currency substitution model for Venezuela

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Author Info
Jaime R. Marquez
Abstract

This paper investigates the extent to which domestic money balances in Venezuela are influenced by foreign exchange considerations. To this end, individuals are assumed to choose the levels of foreign and domestic money that minimize the borrowing costs associated with a given level of monetary services. The solution to this optimization problem yields a closed form domestic money demand function. This specification is estimated and the results point to an elasticity of currency substitution in excess of one. Conditioned on these estimates, the paper presents estimates of the out-of-sample exchange-rate risk for the period 1981-1982, prior to the collapse of the fixed exchange rate system in 1983.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 265.

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Date of creation: 1985
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Handle: RePEc:fip:fedgif:265

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  1. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April. [Downloadable!] (restricted)
  2. William Barnett, 2005. "Monetary Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200510, University of Kansas, Department of Economics, revised Mar 2005. [Downloadable!]
    Other versions:
  3. Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February. [Downloadable!] (restricted)
    Other versions:
  4. Betty C. Daniel & Harold O. Fried, 1983. "Currency Substitution, Postal Strikes, and Canadian Money Demand," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 612-24, November. [Downloadable!] (restricted)
  5. Girton, Lance & Roper, Don E, 1981. "Theory and Implications of Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(1), pages 12-30, February. [Downloadable!] (restricted)
  6. Simos, Evangelos O., 1981. "Real money balances as a productive input : Further evidence," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 207-225. [Downloadable!] (restricted)
  7. Corbo, Vittorio, 1982. "Monetary policy with an overrestricted demand for money equation : Chile in the 60's," Journal of Development Economics, Elsevier, vol. 10(1), pages 119-126, February. [Downloadable!] (restricted)
  8. Blejer, Mario I., 1978. "Black-market exchange-rate expectations and the domestic demand for money : Some empirical results," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 767-773, November. [Downloadable!] (restricted)
  9. Cuddington, John T. & Cuddington, John T., 1983. "Currency substitution, capital mobility and money demand," Journal of International Money and Finance, Elsevier, vol. 2(2), pages 111-133, August. [Downloadable!] (restricted)
  10. Boughton, James M., 1981. "Money and its substitutes," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 375-386. [Downloadable!] (restricted)
  11. Michael R. Darby & Alan C. Stockman, 1980. "The Mark III International Transmission Model," NBER Working Papers 0462, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-25, June. [Downloadable!] (restricted)
  13. Genberg, Hans, 1978. "Purchasing power parity under fixed and flexible exchange rates," Journal of International Economics, Elsevier, vol. 8(2), pages 247-276, May. [Downloadable!] (restricted)
  14. Barnett, William A., 1980. "Economic monetary aggregates--reply," Journal of Econometrics, Elsevier, vol. 14(1), pages 57-59, September. [Downloadable!] (restricted)
  15. Melvin, Michael, 1985. "Currency Substitution and Western European Monetary Unification," Economica, London School of Economics and Political Science, vol. 52(205), pages 79-91, February. [Downloadable!] (restricted)
  16. Thomas, Lee R, 1985. "Portfolio Theory and Currency Substitution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 347-57, August. [Downloadable!] (restricted)
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