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Demanda de dinero y liberalizacion financiera en Mexico: Un enfoque de cointegracion
[Money demand and financial liberalization in Mexico: A cointegration approach]

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  • L. Arnaut, Javier
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    Abstract

    This paper examines the long run dynamics of Mexico’s money demand using Johansen’s cointegration approach with different specifications. The empirical evidence indicates that real balances, real income and the interest rate are cointegrated in all subperiods. The findings suggest that recent changes in economic policy through financial liberalization affected money demand functions; this due to the fact that income elasticity fell down during the transition through the subperiods, but simultaneously this did not affect the functional stability. The cointegrated coefficient on currency-money ratio (M0/M1) suggests that when the ratio falls, the demand for money falls too. Nevertheless, this last evidence is statistically weak. In addition, it was determined that alternative equations are not better than the conventional ones.

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    File URL: http://mpra.ub.uni-muenchen.de/8680/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8680.

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    Date of creation: 2008
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    Handle: RePEc:pra:mprapa:8680

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    Keywords: Money demand; financial liberalization; cointegration; error correction mechanism; currency-money ratio; Mexico;

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    1. Jose De Gregorio & Peter Wickham & Patricio Arrau & Carmen Reinhart, 1991. "The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation," IMF Working Papers 91/45, International Monetary Fund.
    2. Arrau, Patricio & De Gregorio, Jose, 1993. "Financial Innovation and Money Demand: Application to Chile and Mexico," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 524-30, August.
    3. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    4. Cagan, Phillip & Schwartz, Anna Jacobson, 1975. "Has the Growth of Money Substitutes Hindered Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 7(2), pages 137-59, May.
    5. Hafer, R W & Jansen, Dennis W, 1991. "The Demand for Money in the United States: Evidence from Cointegration Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 155-68, May.
    6. Neil R. Ericsson, 1998. "Empirical modeling of money demand," Empirical Economics, Springer, vol. 23(3), pages 295-315.
    7. Hoffman, Dennis L & Rasche, Robert H, 1991. "Long-Run Income and Interest Elasticities of Money Demand in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 665-74, November.
    8. Mohsen Bahmani-Oskooee & Miquel-Angel Galindo Martin & Farhang Niroomand, 1998. "Exchange rate sensitivity of the demand for money in Spain," Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 607-612.
    9. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
    10. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.).
    11. Arango, Sebastian & Ishaq Nadiri, M., 1981. "Demand for money in open economies," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 69-83.
    12. Robert Dekle & Mahmood Pradhan, 1997. "Financial Liberalization and Money Demand in ASEAN Countries: Implications for Monetary Policy," IMF Working Papers 97/36, International Monetary Fund.
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