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Money Demand and Disinflation in Selected CEECs during the Accession to the EU

  • Fidrmuc, Jarko

A panel data set for six countries (Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia) is used to estimate money demand with panel cointegration methods over the recent disinflation period. The basic money demand model is able to convincingly explain the long-run dynamics of M2 in the selected countries. However, money demand is found to have been significantly determined by the euro area interest rates and the exchange rate against the euro, which indicates possible instability of money demand functions in the CEECs. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 1232.

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Date of creation: Oct 2006
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Handle: RePEc:lmu:muenec:1232
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