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The Demand for Money in A Small Island Economy : The Case of Barbados


  • Michael Howard

    (Department of Economics, University of the West Indies Cave Hill Campus, P.O. Box 64, St. Micheal, Barbados)


This study estimates the demand for real money balances in Barbados for the period 1973 - 1998. The paper employs a cointegration and error correction modelling (ECM) approach. The results show that the demand for real money is a function of real income, inflation and the error correction mechanism. This means that real money balance holders restore these balances to the long-run relationship whenever they are in a short-run disequilibrium position. Inflation is exogenous in the money demand function. The policy implication of this finding is that the monetary authorities cannot control the inflation rate in a demand-centered money market.

Suggested Citation

  • Michael Howard, 2002. "The Demand for Money in A Small Island Economy : The Case of Barbados," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 37(2), pages 199-208, July.
  • Handle: RePEc:dse:indecr:v:37:y:2002:i:2:p:199-208

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    More about this item


    Money demand; Cointegration; Exogeneity; Small Economy;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


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