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Money Demand and Inflation in Dollarized Economies: The Case of Russia

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Author Info
Nienke Oomes
Franziska Ohnsorge

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Abstract

Money demand in dollarized economies often appears to be highly unstable, making it difficult to forecast and control inflation. In this paper, we show that a stable money demand function for Russia can be found for "effective broad money," which includes an estimate of foreign cash holdings. Moreover, we find that an excess supply of effective broad money is inflationary, while other excess money measures are not, and that effective broad money growth has the strongest and most persistent effect on short-run inflation.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/144.

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Length: 30 pages
Date of creation: 02 Aug 2005
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Handle: RePEc:imf:imfwpa:05/144

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Keywords: Demand for money Russian Federation Inflation Dollarization Currency substitution

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April. [Downloadable!] (restricted)
  2. Taylor, Mark P, 1991. "The Hyperinflation Model of Money Demand Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 327-51, August. [Downloadable!] (restricted)
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  3. Nikolic, Milan, 2000. "Money Growth-Inflation Relationship in Postcommunist Russia," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 108-133, March. [Downloadable!] (restricted)
  4. Staff Team, 2002. "Russian Federation: Selected Issues and Statistical Appendix," IMF Staff Country Reports 02/75, International Monetary Fund.
  5. Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis: The Case of Russia," IMF Working Papers 03/96, International Monetary Fund. [Downloadable!]
  6. Oya Celasun & Mangal Goswami, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund. [Downloadable!]
  7. Bogdan Lissovolik, 2003. "Determinants of Inflation in a Transition Economy: the Case of Ukraine," IMF Working Papers 03/126, International Monetary Fund. [Downloadable!]
  8. de Brouwer, Gordon & Ericsson, Neil R, 1998. "Modeling Inflation in Australia," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 433-49, October.
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  9. Sprenkle, Case M, 1993. "The Case of the Missing Currency," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 175-84, Fall. [Downloadable!] (restricted)
  10. Choudhry, T., 1998. "Another visit to the Cagan model of money demand: the latest Russian experience," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 355-376, April. [Downloadable!] (restricted)
  11. Joannes Mongardini & Johannes Mueller, 2000. "Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic," IMF Staff Papers, Palgrave Macmillan Journals, vol. 47(2), pages 3. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oomes , Nienke & Kalcheva, Katerina, 2007. "Diagnosing Dutch disease: Does Russia have the symptoms?," BOFIT Discussion Papers 7/2007, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  2. Sosunov, Kirill & Zamulin, Oleg, 2006. "The inflationary consequences of real exchange rate targeting via accumulation of reserves," BOFIT Discussion Papers 11/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  3. Boriss Siliverstovs, 2007. "Dynamic Modelling of the Demand for Money in Latvia," Discussion Papers of DIW Berlin 703, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  4. Nienke Oomes & Oksana Dynnikova, 2006. "The Utilization-Adjusted Output Gap: Is the Russian Economy Overheating?," IMF Working Papers 06/68, International Monetary Fund. [Downloadable!]
  5. Holger Floerkemeier & Era Dabla-Norris, 2006. "Transmission Mechanisms of Monetary Policy in Armenia: Evidence from VAR Analysis," IMF Working Papers 06/248, International Monetary Fund. [Downloadable!]
  6. Harrison , Barry & Vymyatnina, Yulia, 2007. "Currency substitution in a de-dollarizing economy: The case of Russia," BOFIT Discussion Papers 3/2007, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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