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The Demand for Money in Developing Countries

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  • Jose De Gregorio
  • Peter Wickham
  • Patricio Arrau
  • Carmen Reinhart

Abstract

Traditional specifications of money demand have been commonly plagued by persistent overprediction, implausible parameter estimates, and highly autocorrelated errors. This paper argues that some of those problems stem from the failure to account for the impact of financial innovation. We estimate money demand for ten developing countries employing various proxies for the innovation process and provide an assessment of the relative importance of this variable. We find that financial innovation plays an important role in determining money demand and its fluctuations, and that the importance of this role increases with the rate of inflation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 91/45.

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Length: 40
Date of creation: 01 May 1991
Date of revision:
Handle: RePEc:imf:imfwpa:91/45

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Cited by:
  1. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
  2. Eduardo Borensztein & Carmen Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Working Papers 94/9, International Monetary Fund.
  3. Reinhart, Carmen & Vegh, Carlos, 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," MPRA Paper 13898, University Library of Munich, Germany.
  4. Abbas Valadkhani & Mohammad Alauddin, 2003. "Demand for M2 in Developing Countries: An Empirical Panel Investigation," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 158, School of Economics and Finance, Queensland University of Technology.
  5. Easterly, William & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1992. "Money demand and seignorage - maximizing inflation," Policy Research Working Paper Series 1049, The World Bank.
  6. Reinhart, Carmen & Vegh, Carlos, 1994. "Intertemporal consumption substitution and inflation stabilization:An empirical investigation," MPRA Paper 13427, University Library of Munich, Germany.
  7. Aarle, B. van & Budina, N., 1995. "Currency substitution in Eastern Europe," Discussion Paper, Tilburg University, Center for Economic Research 1995-2, Tilburg University, Center for Economic Research.
  8. Valadkhani, Abbas, 2006. "What Determines the Demand for Money in the Asian-Pacific Countries? An Empirical Panel Investigation," Economics Working Papers, School of Economics, University of Wollongong, NSW, Australia wp06-11, School of Economics, University of Wollongong, NSW, Australia.
  9. Komárek Luboš & Melecký Martin, 2001. "Demand for Money in the Transition Economy : The Case of the Czech Republic 1993–2001," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 614, University of Warwick, Department of Economics.
  10. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, Springer, vol. 3(3), pages 323-343, October.
  11. Reinhart, Carmen & Borensztein, Eduardo, 1994. "The determinants of commodity prices," MPRA Paper 13870, University Library of Munich, Germany.
  12. Komárek Luboš & Melecký Martin, 2001. "Currency Substitution in the Transition Economy : A Case of the Czech Republic 1993-2001," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 613, University of Warwick, Department of Economics.
  13. 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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