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Money Market Equilibrium in the Czech Republic

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  • Jana Juriová

Abstract

This paper examines the theoretical concept of equilibrium in the money market that is empirically verified for the economy of the Czech Republic. The subject of the analysis is the relationship defining equilibrium in the domestic money market, i.e. when money demand corresponds to the money supply in the economy. The main objective is to determine whether such a long-term equilibrium relationship exists by verifying this assumption on real data for the Czech economy. The Johansen cointegration approach is applied for modelling the money demand function including four domestic macroeconomic indicators: money supply, price level, gross domestic product, and interest rate. The results suggest that the level of real money supply fluctuated around the estimated long-run equilibrium value in the analysed period 2000-2013.

Suggested Citation

  • Jana Juriová, 2016. "Money Market Equilibrium in the Czech Republic," Prague Economic Papers, University of Economics, Prague, vol. 2016(3), pages 321-334.
  • Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:3:id:564:p:321-334
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    References listed on IDEAS

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    1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    2. G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 727-748.
    3. Bernd Hayo, 2000. "The demand for money in Austria," Empirical Economics, Springer, vol. 25(4), pages 581-603.
    4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    5. Bhaskara Rao, B. & Rao, Gyaneshwar, 2009. "Structural breaks and energy efficiency in Fiji," Energy Policy, Elsevier, vol. 37(10), pages 3959-3966, October.
    6. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    7. Kyongwook Choi & Chulho Jung, 2009. "Structural changes and the US money demand function," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1251-1257.
    8. Akhand Akhtar Hossain, 2013. "How Stable Is the Broad Money Demand Function in Australia? – An Empirical Study," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 7-25, January.
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    More about this item

    Keywords

    OLS; money supply; money market; money demand; long-run equilibrium; error-correction model; cointegration;

    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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