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

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  • Korhonen, Iikka
  • Mehrotra, Aaron

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.

Suggested Citation

  • Korhonen, Iikka & Mehrotra, Aaron, 2007. "Money demand in post-crisis Russia: De-dollarisation and re-monetisation," BOFIT Discussion Papers 14/2007, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2007_014
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    Cited by:

    1. Korhonen, Iikka & Nuutilainen, Riikka, 2017. "Breaking monetary policy rules in Russia," Russian Journal of Economics, Elsevier, vol. 3(4), pages 366-378.
    2. Mehrotra, Aaron & Ponomarenko, Alexey, 2010. "Wealth effects and Russian money demand," BOFIT Discussion Papers 13/2010, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. Iikka Korhonen & Riikka Nuutilainen, 2016. "A monetary policy rule for Russia, or is it rules?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 28-45.
    4. Evžen Kočenda & Balázs Varga, 2018. "The Impact of Monetary Strategies on Inflation Persistence," International Journal of Central Banking, International Journal of Central Banking, vol. 14(4), pages 229-274, September.
    5. El-Shagi, Makram & Tochkov, Kiril, 2022. "Divisia monetary aggregates for Russia: Money demand, GDP nowcasting and the price puzzle," Economic Systems, Elsevier, vol. 46(4).
    6. Mohsen Bahmani-Oskooee & Sahar Bahmani & Ali M. Kutan & Dan Xi, 2019. "On the Asymmetric Effects of Exchange Rate Changes on the Demand for Money: Evidence from Emerging Economies," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1), pages 1-22, April.
    7. Liudmila Kitrar & Tamara Lipkind & Georgy Ostapkovich, 2020. "The Performance Of Business And Consumer Sentiment For Early Estimates Of Gdp Growth: Old Turning Points And New Challenges Of The Corona Crisis," HSE Working papers WP BRP 110/STI/2020, National Research University Higher School of Economics.
    8. Andrei Polbin & Sergey Drobyshevsky, 2014. "Developing a Dynamic Stochastic Model of General Equilibrium for the Russian Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 166P, pages 156-156.
    9. Sosunov, K., 2013. "Estimation of the Money Demand Function in Russia," Journal of the New Economic Association, New Economic Association, vol. 18(2), pages 89-99.
    10. Michael Asiedu & Patrick Bimpong & Thomas Hezkeal Nan Khela & Benedict Arthur, 2021. "Long-Run Money Demand Function: Search for Stability in Twenty (20) Non-EMU Member Countries," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(1), pages 58-87, March.
    11. repec:zbw:bofitp:2014_022 is not listed on IDEAS
    12. Deryugina, Elena & Ponomarenko, Alexey, 2014. "A large Bayesian vector autoregression model for Russia," BOFIT Discussion Papers 22/2014, Bank of Finland Institute for Emerging Economies (BOFIT).
    13. repec:zbw:bofitp:2010_013 is not listed on IDEAS
    14. Deryugina, Elena & Ponomarenko, Alexey, 2014. "A large Bayesian vector autoregression model for Russia," BOFIT Discussion Papers 22/2014, Bank of Finland, Institute for Economies in Transition.
    15. Kumar, Saten, 2011. "Financial reforms and money demand: Evidence from 20 developing countries," Economic Systems, Elsevier, vol. 35(3), pages 323-334, September.
    16. Mehrotra, Aaron & Ponomarenko, Alexey, 2010. "Wealth effects and Russian money demand," BOFIT Discussion Papers 13/2010, Bank of Finland, Institute for Economies in Transition.
    17. Ufuk CAN & Zeynep Gizem CAN & Süleyman DEĞİRMEN, 2019. "Paranın Dolaşım Hızının ve Para Talebi Fonksiyonunun Ekonometrik Analizi: Türkiye Örneği," Istanbul Business Research, Istanbul University Business School, vol. 48(2), pages 218-247, November.
    18. repec:zbw:bofitp:2016_002 is not listed on IDEAS
    19. Iikka Korhonen & Riikka Nuutilainen, 2016. "A monetary policy rule for Russia, or is it rules?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 28-45.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices

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