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A Comparative Study For Opportunity Cost Of Holding Money Between Selected Developing And Developed Countries

Author

Listed:
  • Zahra Rouhani

    () (Sanabad University, Mashhad, Iran)

  • Mehdi Behname

    () (Ferdowsi University of Mashhad (FUM), Mashhad, Iran)

  • Sayed Mahdi Mostafavi

    (Ferdowsi University of Mashhad (FUM), Mashhad, Iran)

Abstract

This paper searches an appropriate proxy for opportunity cost of holding money. We apply a balance panel data for selected developed and developing countries during the period of 1990-2008. Three models have been estimated for each group of the countries. Both random and fixed effect models have been applied. The results show that inflation rate is a good proxy for opportunity cost of holding money in the developing countries. This fact is probably the caused of inefficiency in financial markets. However, for developed countries both inflation rate and interest rate should apply as opportunity cost of holding money. When interest rate is a good proxy for opportunity cost of holding money and bonds, we can conclude that there is a competitive market in the financial market. On the other hand, we can consider the inflation rate as a proxy for durable goods and foreign currency.

Suggested Citation

  • Zahra Rouhani & Mehdi Behname & Sayed Mahdi Mostafavi, 2013. "A Comparative Study For Opportunity Cost Of Holding Money Between Selected Developing And Developed Countries," Romanian Economic Business Review, Romanian-American University, vol. 8(4), pages 7-17, december.
  • Handle: RePEc:rau:journl:v:8:y:2013:i:4:p:7-17
    as

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    References listed on IDEAS

    as
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