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Towards an Estimation of Money Demand with Forecasting Purposes: Argentina, 1993-2005


  • Horacio Aguirre

    () (Central Bank of Argentina)

  • Tamara Burdisso

    () (Central Bank of Argentina)

  • Federico Grillo

    () (Central Bank of Argentina)


This paper aims at producing forecasts of monetary aggregates which are useful in formulating monetary policy in Argentina; in particular, forecasts that allow evaluation of alternative economic scenarios, with a 5-quarter horizon and of both public and private monetary aggregates. With that aim, relationships between different aggregates – currency, M1*, M2*, M3*- and two of their determinants (GDP and interest rates) are estimated. The period selected (1993-2005) spans two different macroeconomic regimes, something problematic when analyzing long-run relationships: coefficients differ from those suggested by economic theory; and cointegration relationships are not stationary. In contrast, short-term models are estimated that exhibit acceptable goodness-of-fit, and evidence of stable parameters. In-sample forecasts do not display errors significantly different from zero, and observations between 2004:III and 2005:III are included within one-standard deviation confidence intervals. Additionally, forecast unbiasedness is obtained. Thus, models show good forecast capacity. However, taking into account the Central Bank’s aims and constraints, more demanding criteria should be applied: although forecast errors are not significant, they turn more persistent as the forecast horizon is extended; and they currently seem to indicate underestimation of narrow aggregates and overestimation of broad ones. Such behavior may be related to more “cash-intensive” money holdings after the crisis. An adjustment to forecasts is proposed in order to deal with this problem. The models obtained can be used to evaluate whether a given monetary target is consistent with a certain macroeconomic scenario, using as inputs variables whose forecasts can be obtained from models developed at BCRA.

Suggested Citation

  • Horacio Aguirre & Tamara Burdisso & Federico Grillo, 2006. "Towards an Estimation of Money Demand with Forecasting Purposes: Argentina, 1993-2005," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(45), pages 7-44, October.
  • Handle: RePEc:bcr:ensayo:v:1:y:2006:i:45:p:7-44

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    References listed on IDEAS

    1. Markus Knell & Helmut Stix, 2004. "Three Decades of Money Demand Studies. Some Differences and Remarkable Similarities," Working Papers 88, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
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    Cited by:

    1. Pedro Elosegui & Guillermo Escudé & Lorena Garegnani & Juan Martín Sotes Paladino (ed.), 2007. "A Small Economic Model for Argentina," BCRA Paper Series, Central Bank of Argentina, Economic Research Department, number 03, December.
    2. Mehrotra, Aaron & Ponomarenko, Alexey, 2010. "Wealth effects and Russian money demand," BOFIT Discussion Papers 13/2010, Bank of Finland, Institute for Economies in Transition.

    More about this item


    Argentina; forecasts; monetary aggregates; monetary policy; money demand;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications


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