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A stable demand for money despite financial crisis: the case of Venezuela

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  • Hilde Bjørnland

Abstract

The demand for broad money in Venezuela is investigated over a period of financial crisis and substantial exchange rate fluctuations. The analysis shows that there exist a long-run relationship between real money, real income, inflation, the exchange rate and an interest rate differential, that remains stable over major policy changes and large shocks. The long-run properties emphasize that both inflation and exchange rate depreciations have negative effects on real money demand, whereas a higher interest rate differential has positive effects. The long-run relationship is finally embedded in a dynamic equilibrium correction model with constant parameters. These results have implications for a policy-maker. In particular, they emphasize that with a high degree of currency substitution in Venezuela, monetary aggregates will be very sensitive to changes in the economic environment.

Suggested Citation

  • Hilde Bjørnland, 2005. "A stable demand for money despite financial crisis: the case of Venezuela," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 375-385.
  • Handle: RePEc:taf:applec:v:37:y:2005:i:4:p:375-385
    DOI: 10.1080/00036840412331315015
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    Cited by:

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    2. Horacio Aguirre & Tamara Burdisso & Federico Grillo, 2006. "Towards an Estimation of Money Demand with Forecasting Purposes," BCRA Working Paper Series 200611, Central Bank of Argentina, Economic Research Department.
    3. Tom Cusbert & Thomas Rohling, 2013. "Currency Demand during the Global Financial Crisis: Evidence from Australia," RBA Research Discussion Papers rdp2013-01, Reserve Bank of Australia.
    4. Mr. Edward F Buffie & Luis-Felipe Zanna & Mr. Marco Airaudo, 2016. "Inflation Targeting and Exchange Rate Management In Less Developed Countries," IMF Working Papers 2016/055, International Monetary Fund.
    5. Amir Kia, 2006. "Economic policies and demand for money: evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1389-1407.
    6. El-Shazly, Alaa, 2016. "Structural breaks and monetary dynamics: A time series analysis," Economic Modelling, Elsevier, vol. 53(C), pages 133-143.

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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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