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Demand for Money in Hungary: An ARDL Approach

Author

Listed:
  • Nikolaos Dritsakis

    (University of Macedonia Economics and Social Sciences, GREECE)

Abstract

This study examines the demand for money in Hungary using the autoregressive distributed lag (ARDL) cointegration framework. The results based on the bounds testing procedure confirm that a stable, long-run relationship exists between demand for money and its determinants: real income, inflation rate and nominal exchange rate. The empirical results show that there is a unique cointegrated and stable long-run relationship among M1 real monetary aggregate, real income, inflation rate and nominal exchange rate. We find that the real income elasticity coefficient is positive while the inflation rate elasticity and nominal exchange rate are negative. This indicates that depreciation of domestic currency decreases the demand for money. Our results also reveal that after incorporating the CUSUM and CUSUMSQ tests, M1 money demand function is stable between 1995:1 and 2010:1.

Suggested Citation

  • Nikolaos Dritsakis, 2011. "Demand for Money in Hungary: An ARDL Approach," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 01-16, November.
    • Handle: RePEc:bap:journl:110501
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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