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Economic sentiments and money demand stability in the CEECs

Author

Listed:
  • Valentina MERA
  • Monica POP SILAGHI
  • Camélia TURCU

Abstract

This paper aims at building a money demand function that takes account of the heterogeneities of the Central and Eastern European Countries (CEECs) in the context of the European integration. We extend the traditional specification of money demand to capture the effects of a change in agents’ expectations regarding the dynamics of economic activity. The traditional determinants of the demand for money (real GDP, interest rate, inflation rate) are found to be significant and have the expected sign. Above this, we also find that the role of economic sentiments - captured through the European sentiment indicator (ESI) - is significant in explaining the money demand: consumers’ and investors’ gloomy expectations concerning future economic developments trigger an increase in the domestic money demand, due to precautionary reasons. Our results also suggest that a currency substitution effect, against both euro and USD, is present in the CEECs.
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Suggested Citation

  • Valentina MERA & Monica POP SILAGHI & Camélia TURCU, 2019. "Economic sentiments and money demand stability in the CEECs," LEO Working Papers / DR LEO 2694, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    • Handle: RePEc:leo:wpaper:2694
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    Cited by:

    1. Bekir Asik, 2024. "Uncertainty and Money Demand Function in Developing Countries," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 10(2), pages 111-136, December.
    2. Huawei Niu & Tianyu Liu, 2024. "Forecasting the volatility of European Union allowance futures with macroeconomic variables using the GJR-GARCH-MIDAS model," Empirical Economics, Springer, vol. 67(1), pages 75-96, July.
    3. del Río, Cristina & Ferrer, Elena & López-Arceiz, Francisco J., 2024. "Analyst optimism and market sentiment: Evidence from European corporate sustainability reporters," Research in International Business and Finance, Elsevier, vol. 69(C).
    4. Ifeoma Enemuo Joy & Abner Ishaku Prince & Edet Inim Victor & Akpan Boniface L. & Gift Rotimi Grace & Udo Emmanuel Samuel, 2025. "Stability of Money Demand in Sub-Saharan Africa: A Cross-Sectional ARDL Analysis by Income Levels," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 35(4), pages 78-103.
    5. Lebre DE Freitas, Miguel, 2022. "International currency substitution and the demand for money in the euro area," Economic Modelling, Elsevier, vol. 117(C).

    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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