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International Shifts in the demand for money in a small monetarist model

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  • Gutierrez-Camara, J.L.
  • Vaubel, Roland

Abstract

At the latest since 1978, international shifts in the demand for money have widely been recognized as a major problem for monetary-policy making under flexible exchange rates. To the extent that such shifts are unpredictable, the case for monetary preannouncement is weakened (Giersch, 1977; Girton, Roper, 1978; Sachverständigenrat, 1978/9; Vaubel, 1980). To the extent that they are unidentifiable once they occur, the case for flexible exchange rates is weakened (Giersch, 1977; King et al., 1977; Sachverständigenrat, 1978/9; Vaubel, 1980). Empirical identification of international shifts in the demand for money (or, what is the same, of currency substitution in demand) has been attempted though estimation of money-demand functions and exchange-rate functions. Concentrating on international stock shifts in the demand for money rather than on portfolio-growth effects (which are likely to be far less volatile), most researchers used the forward premium/discount or, what is approximately the same, the international interest- rate differential as the most promising determinant of currency substitution; for these variables reflect the expected difference in the opportunity cost of holding the monies concerned if interest is not paid on money balances or on required reserves.

Suggested Citation

  • Gutierrez-Camara, J.L. & Vaubel, Roland, 1981. "International Shifts in the demand for money in a small monetarist model," Kiel Working Papers 121, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:121
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    References listed on IDEAS

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    1. Frenkel, Jacob A, 1977. "The Forward Exchange Rate, Expectations, and the Demand for Money: The German Hyperinflation," American Economic Review, American Economic Association, vol. 67(4), pages 653-670, September.
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    3. Guillermo Ortiz & Leopoldo Solís, 1981. "Inflation and Growth: Exchange Rate Alternatives for Mexico," Palgrave Macmillan Books, in: John Williamson (ed.), Exchange Rate Rules, chapter 10, pages 327-350, Palgrave Macmillan.
    4. Chrystal, K Alec, 1977. "Demand for International Media of Exchange," American Economic Review, American Economic Association, vol. 67(5), pages 840-850, December.
    5. Bruce Brittain, 1980. "International currency substitution and the apparent instability of velocity in some western European economies and in the United States," BIS Working Papers 2, Bank for International Settlements.
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