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Demand for cash balances in Germany: theoretical underpinnings and empirical evidence

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  • Martin Bohl
  • Friedrich Sell

Abstract

The purpose of this paper is to develop and test a cash-in-advance model of an open economy. Following the contribution of Bohn (1991) and using intertemporal balance of payments theory we set up a currency demand function with real consumption expenditure, the foreign interest rate and exchange rate expectations as the core explaining variables. We test the model with the aid of the econometric techniques proposed by Hylleberg, Engle, Granger and Yoo (1990) and Engle, Granger, Hylleberg and Lee (1993) relying on quarterly seasonally unadjusted data for Germany in the period 1960: 1 to 1993: 4. The findings reported in the paper support the suggestions made by the theoretical model.

Suggested Citation

  • Martin Bohl & Friedrich Sell, 1998. "Demand for cash balances in Germany: theoretical underpinnings and empirical evidence," Applied Economics, Taylor & Francis Journals, vol. 30(8), pages 1017-1026.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:8:p:1017-1026
    DOI: 10.1080/000368498325192
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    Cited by:

    1. Fischer, Björn & Köhler-Ulbrich, Petra & Seitz, Franz, 2004. "The demand for euro area currencies: past, present and future," Working Paper Series 330, European Central Bank.
    2. Méndez Parra, Maximiliano, 2015. "Futures prices, trade and domestic supply of agricultural commodities," Economics PhD Theses 0115, Department of Economics, University of Sussex Business School.
    3. Mendez Parra, Maximiliano, 2015. "Seasonal Unit Roots and Structural Breaks in agricultural time series: Monthly exports and domestic supply in Argentina," MPRA Paper 63831, University Library of Munich, Germany, revised 06 Apr 2015.
    4. Singh, Sunny Kumar, 2016. "Currency demand stability in the presence of seasonality and endogenous financial innovation: Evidence from India," MPRA Paper 71552, University Library of Munich, Germany.

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