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Does Economic Crisis Affect The Demand For Money: Evidence From Croatia?

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  • SVILOKOS, Tonći

    (Institute of Social Sciences, Department of Economics, Ege University, Turkey)

Abstract

The purpose of this paper is to examine whether there are significantly different characteristics of the demand for money in Croatia in the period before and during the recession. The paper applies error correction model (ECM) and autoregressive distributed lag (ARDL) approach, estimating model 1 for the period of growth, and model 2 for the period of recession. Structural stability of these models was tested by cumulative sum and cumulative sum of square tests. Comparing the results of the models, the substantial changes in the function of the demand for money has been detected. Namely, the research shows that variables: interest rates (IR), real effective exchange rate (REER) and inflation (CPI) are significant in model 1, while the variable industrial production (IP) is not significant. In model 2 only industrial production (IP) and inflation (CPI) have been found to be statistically significant with the adequate sign.

Suggested Citation

  • SVILOKOS, Tonći, 2016. "Does Economic Crisis Affect The Demand For Money: Evidence From Croatia?," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(3), pages 6-27.
  • Handle: RePEc:vls:finstu:v:20:y:2016:i:3:p:6-27
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    References listed on IDEAS

    as
    1. Carstensen, Kai, 2006. "Stock Market Downswing and the Stability of European Monetary Union Money Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 395-402, October.
    2. Stefka Slavova, 2003. "Money demand during hyperinflation and stabilization: Bulgaria, 1991-2000," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1303-1316.
    3. A. C. Pigou, 1917. "The Value of Money," The Quarterly Journal of Economics, Oxford University Press, vol. 32(1), pages 38-65.
    4. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 66(4), pages 545-556.
    5. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    6. Fiona Atkins, 2005. "Financial Crises and Money Demand in Jamaica," Birkbeck Working Papers in Economics and Finance 0512, Birkbeck, Department of Economics, Mathematics & Statistics.
    7. Christian Dreger & Jürgen Wolters, 2011. "Money and Inflation in the Euro Area during the Financial Crisis," Discussion Papers of DIW Berlin 1131, DIW Berlin, German Institute for Economic Research.
    8. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
    9. Subrata Ghatak & Jalal Siddiki, 2001. "The use of the ARDL approach in estimating virtual exchange rates in India," Journal of Applied Statistics, Taylor & Francis Journals, vol. 28(5), pages 573-583.
    10. Mohsen Bahmani-Oskooee & Raymond Chi Wing Ng, 2002. "Long-Run Demand for Money in Hong Kong: An Application of the ARDL Model," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 147-155, August.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    More about this item

    Keywords

    money demand; economic crisis; error correct model; autoregressive distributed lag; Croatia;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G01 - Financial Economics - - General - - - Financial Crises

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