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Money Demand and Inflation in Dollarized Economies; The Case of Russia

  • Franziska Ohnsorge
  • Nienke Oomes

Money demand in dollarized economies often appears to be highly unstable, making it difficult to forecast and control inflation. In this paper, we show that a stable money demand function for Russia can be found for "effective broad money," which includes an estimate of foreign cash holdings. Moreover, we find that an excess supply of effective broad money is inflationary, while other excess money measures are not, and that effective broad money growth has the strongest and most persistent effect on short-run inflation.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/144.

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Length: 30
Date of creation: 01 Jul 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/144
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  1. Mohsen Bahmani-Oskooee & Michael P. Barry, 2000. "Stability of the Demand for Money in an Unstable Country: Russia," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(4), pages 619-629, July.
  2. Nikolic, Milan, 2000. "Money Growth-Inflation Relationship in Postcommunist Russia," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 108-133, March.
  3. International Monetary Fund, 2002. "Russian Federation; Selected Issues and Statistical Appendix," IMF Staff Country Reports 02/75, International Monetary Fund.
  4. Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund.
  5. Thierry D. Buchs, 1999. "Financial crisis in the Russian Federation: Are the Russians learning to tango?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(3), pages 687-715, November.
  6. Wojciech Maliszewski, 2003. "Modeling Inflation in Georgia," IMF Working Papers 03/212, International Monetary Fund.
  7. Taylor, Mark P, 1990. "The Hyperinflation Model of Money Demand Revisited," CEPR Discussion Papers 473, C.E.P.R. Discussion Papers.
  8. Gordon de Brouwer & Neil R. Ericsson, 1995. "Modelling inflation in Australia," International Finance Discussion Papers 530, Board of Governors of the Federal Reserve System (U.S.).
  9. Emilio Sacerdoti & Yuan Xiao, 2001. "Inflation Dynamics in Madagascar, 1971-2000," IMF Working Papers 01/168, International Monetary Fund.
  10. Oral Williams & Olumuyiwa Adedeji, 2004. "Inflation Dynamics in the Dominican Republic," IMF Working Papers 04/29, International Monetary Fund.
  11. Edgar L. Feige & Michael Faulend & Velimir Sonje & Vedran Sosic, 2001. "Currency Substitution, Unoffical Dollarization and Estimates of Foreign Currency Held Abroad: The Case of Croatia," International Finance 0106001, EconWPA.
  12. Choudhry, T., 1998. "Another visit to the Cagan model of money demand: the latest Russian experience," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 355-376, April.
  13. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund.
  14. Padma Desai, 2000. "Why Did the Ruble Collapse in August 1998?," American Economic Review, American Economic Association, vol. 90(2), pages 48-52, May.
  15. Kamin, Steven B. & Ericsson, Neil R., 2003. "Dollarization in post-hyperinflationary Argentina," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 185-211, April.
  16. Joannes Mongardini & Johannes Mueller, 1999. "Rachet Effects in Currency Substitution; An Application to the Kyrgyz Republic," IMF Working Papers 99/102, International Monetary Fund.
  17. Bahmani-Oskooee Mohsen & Shin Sungwon, 2002. "Stability of the Demand for Money in Korea," International Economic Journal, Taylor & Francis Journals, vol. 16(2), pages 85-95.
  18. Case M. Sprenkle, 1993. "The Case of the Missing Currency," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 175-184, Fall.
  19. Homi Kharas & Brian Pinto & Sergei Ulatov, 2001. "An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 1-68.
  20. Bogdan Lissovolik, 2003. "Determinants of Inflation in a Transition Economy; The Case of Ukraine," IMF Working Papers 03/126, International Monetary Fund.
  21. Nienke Oomes, 2003. "Network Externalities and Dollarization Hysteresis; The Case of Russia," IMF Working Papers 03/96, International Monetary Fund.
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