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Money demand in the Dominican Republic

Author

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  • Alan Carruth
  • Jose Roberto Sanchez-Fung

Abstract

This paper investigates a demand for money relationship for the Dominican Republic. The financial system of the Dominican Republic is underdeveloped, and there are no suitable domestic data on the opportunity cost of holding money. Economic links with the USA suggest a possible role for a foreign interest rate effect and a currency substitution effect in the demand for domestic money. A long-run demand for money relationship is developed from the perspective of alternative estimation methodologies, and it is shown that a 'literature standard' specification augmented by foreign monetary variables is robust. The ensuing short-run dynamic model is adequate, stable and suggests an important role for expected inflation, and a real bilateral exchange rate with the USA. A number of policy implications for the Dominican Republic are drawn from the results.

Suggested Citation

  • Alan Carruth & Jose Roberto Sanchez-Fung, 2000. "Money demand in the Dominican Republic," Applied Economics, Taylor & Francis Journals, vol. 32(11), pages 1439-1449.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:11:p:1439-1449
    DOI: 10.1080/00036840050151511
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    Cited by:

    1. Peter Prazmowski, 2002. "Endogenous credibility and stabilization programmes: evidence from the Dominican Republic," Applied Economics Letters, Taylor & Francis Journals, vol. 9(14), pages 933-937.
    2. Mauricio Mayorga Martínez & Evelyn Muñoz Salas, 2004. "¿Existe disciplina de mercado en el sistema bancario costarricense?," Monetaria, CEMLA, vol. 0(3), pages 263-289, julio-sep.
    3. Sanchez-Fung, Jose R., 2004. "Modelling money demand in the Dominican Republic," Economics Discussion Papers 2004-1, School of Economics, Kingston University London.
    4. Mr. Oral Williams & Mr. Olumuyiwa S Adedeji, 2004. "Inflation Dynamics in the Dominican Republic," IMF Working Papers 2004/029, International Monetary Fund.
    5. Hilcías Estuardo Samayoa & Héctor Augusto Valle Samayoa, 2004. "Un modelo básico de política monetaria para Guatemala," Monetaria, CEMLA, vol. 0(3), pages 223-242, julio-sep.
    6. José R Sánchez-Fung, 2000. "Money Demand, PPP and Macroeconomic Dynamics in a Small Developing Economy," Studies in Economics 0015, School of Economics, University of Kent.
    7. Kevin S. Nell, 1999. "The Stability of Money Demand in South Africa, 1965-1997," Studies in Economics 9905, School of Economics, University of Kent.
    8. Gustavo Bussinger, 2004. "El canal de crédito como mecanismo de transmisión de la política monetaria en Brasil," Monetaria, CEMLA, vol. 0(3), pages 243-262, julio-sep.
    9. José R. Sánchez Fung, 2004. "Reglas monetarias, metas de inflación y sus aplicaciones potenciales de la República Dominicana," Monetaria, CEMLA, vol. 0(3), pages 291-323, julio-sep.
    10. Baharumshah, Ahmad Zubaidi & Mohd, Siti Hamizah & Yol, Marial Awou, 2009. "Stock prices and demand for money in China: New evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 171-187, February.

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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