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Money demand in post-crisis Russia: De-dollarisation and re-monetisation

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Abstract

Estimating money demand functions for Russia following the 1998 crisis, we find a stable money demand relationship when augmented by a deterministic trend signifying falling velocity. As predicted by theory, higher income boosts demand for real rouble balances and the income elasticity of money is close to unity. Inflation affects the adjustment towards equilibrium, while broad money shocks lead to higher inflation. We also show that exchange rate fluctuations have a considerable influence on Russian money demand. The results indicate that Russian monetary authorities have been correct in using the money stock as an information variable and that the strong influence of exchange rate on money demand is likely to continue despite de-dollarisation of the Russian economy.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp1407.pdf
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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 14/2007.

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Length: 32 pages
Date of creation: 29 Jun 2007
Date of revision:
Handle: RePEc:hhs:bofitp:2007_014

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Web page: http://www.suomenpankki.fi/bofit_en/
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Keywords: money demand; vector error correction models; dollarisation; Russia;

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  1. Peter Keller & Thomas J. Richardson, 2003. "Nominal Anchors in the CIS," IMF Working Papers 03/179, International Monetary Fund.
  2. Karl-Heinz Tödter & Hans-Eggert Reimers, 1994. "P-Star as a link between money and prices in Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(2), pages 273-289, June.
  3. Kim, Byung-Yeon & Pirttilä, Jukka & Rautava, Jouko, 2001. "Money, Barter and Inflation in Russia," BOFIT Discussion Papers 15/2001, Bank of Finland, Institute for Economies in Transition.
  4. Christopher A. Sims & Tao A. Zha, 1998. "Does monetary policy generate recessions?," Working Paper 98-12, Federal Reserve Bank of Atlanta.
  5. Ralf Brüggemann & Helmut Lütkepohl, 2005. "Practical Problems with Reduced-rank ML Estimators for Cointegration Parameters and a Simple Alternative," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(5), pages 673-690, October.
  6. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 306-333.
  7. Burstein, Ariel Tomas & Eichenbaum, Martin & Rebelo, Sérgio, 2004. "Large Devaluations and the Real Exchange Rate," CEPR Discussion Papers 4810, C.E.P.R. Discussion Papers.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  9. Hallman, Jeffrey J & Porter, Richard D & Small, David H, 1991. "Is the Price Level Tied to the M2 Monetary Aggregate in the Long Run?," American Economic Review, American Economic Association, vol. 81(4), pages 841-58, September.
  10. Markus Knell & Helmut Stix, 2006. "Three decades of money demand studies: differences and similarities," Applied Economics, Taylor & Francis Journals, vol. 38(7), pages 805-818.
  11. Saikkonen, Pentti & Lutkepohl, Helmut, 2000. "Testing for the Cointegrating Rank of a VAR Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 451-64, October.
  12. Yulia Vymyatnina, 2005. "Monetary policy transmission and Bank of Russia monetary policy," EUSP Deparment of Economics Working Paper Series Ec-02/05, European University at St. Petersburg, Department of Economics, revised Nov 2005.
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Cited by:
  1. Juurikkala, Tuuli & Solanko, Laura & Karas, Alexei, 2009. "The role of banks in monetary policy transmission: Empirical evidence from Russia," BOFIT Discussion Papers 8/2009, Bank of Finland, Institute for Economies in Transition.
  2. Korhonen, Iikka & Mehrotra, Aaron, 2009. "Real Exchange Rate, Output and Oil: Case of Four Large Energy Producers," BOFIT Discussion Papers 6/2009, Bank of Finland, Institute for Economies in Transition.

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