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The Demand-for-money Function

Author

Listed:
  • Jan Klacek
  • Kateřina Šmídková

Abstract

The stability and credibility of a national currency is one of the key factors for successful national economic development. Knowledge of the long-run demand for money helps the monetary authorities to determine what is the rate of growth of the money stock that would not lead to an excessive money supply and, consequently, would not accelerate inflation. Also, it allows to avoid the costs incurred by the central bank in case it has to curb down an excess demand for money, and in doing so contribute to economic recession. The possible costs of mistakes in targeting the money stock are likely to be much higher for a transitional economy: a trade-off between transitional inflation and recession is much more difficult to discern than in a standard market economy, and credibility once lost is extremely hard to re-gain.

Suggested Citation

  • Jan Klacek & Kateřina Šmídková, 1995. "The Demand-for-money Function," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 2(2).
  • Handle: RePEc:czx:journl:v:2:y:1995:i:2:id:21
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    File URL: http://ces.utia.cas.cz/bulletin/index.php/bulletin/article/view/21
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    Cited by:

    1. Keith Cuthbertson & Don Bredin, 2001. "Money demand in the czech republic since transition," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(4), pages 271-290.
    2. Jelena Maravic & Mirjana Palic, 2005. "Econometric Analysis of Money Demand in Serbia," Working papers 2, National Bank of Serbia.

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