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How does domestic and foreign money growth affect the U.S. economy?

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  • Virén, Matti

Abstract

This paper tests the hypothesis advanced particularly by McKinnon that the U.S. economy is strongly affected by the world supply of money and the U.S. effective exchange rate while the domestic money supply is of minor importance. This currency substitution hypothesis is tested by using monthly data for the floating exchange rate period 1973 - 1988. The empirical results give cle"ar support" to McKinnon's hypothesis.

Suggested Citation

  • Virén, Matti, 1989. "How does domestic and foreign money growth affect the U.S. economy?," Bank of Finland Research Discussion Papers 19/1989, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1989_019
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    References listed on IDEAS

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    1. Marquez, Jaime, 1987. "Money demand in open economies: A currency substitution model for Venezuela," Journal of International Money and Finance, Elsevier, vol. 6(2), pages 167-178, June.
    2. Jacobs, Rodney L & Leamer, Edward E & Ward, Michael P, 1979. "Difficulties with Testing for Causation," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 401-413, July.
    3. Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-678, May.
    4. Joines, Douglas H., 1985. "International currency substitution and the income velocity of money," Journal of International Money and Finance, Elsevier, vol. 4(3), pages 303-316, September.
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