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Money Demand in Romania

  • Dumitru, Ionut

Finding a stable money demand relationship is considered essential for the formulation and conduction of an efficient monetary policy. Consequently, numerous theoretical and empirical studies have been conducted in both developed and developing countries to evaluate the determinants and the stability of the demand for money function for various monetary aggregates. This paper briefly reviews the theoretical work, tracing the contributions of several researchers beginning from the classical economists, and explains relevant empirical issues in modelling and estimating money demand function for Romania. The paper models the empirical relationship between broader definition of money, output, interest rates, inflation and exchange rate in Romania and examines the constancy of this relationship, especially in the light of financial reform and deregulation of financial markets. The demand for broad money in Romania has been stable between 1996 and 2002 despite of a pronounced financial liberalization. The analysis suggests that, in Romania in the long run the inflation is weakly exogenous for the money demand, which means that inflation is not a monetary phenomenon.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10629.

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Date of creation: 15 Jun 2002
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Handle: RePEc:pra:mprapa:10629
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  1. Budina, Nina & Van Wijnbergen, Sweder, 2000. "Fiscal deficits, monetary reform, and inflation stabilization in Romania," Policy Research Working Paper Series 2298, The World Bank.
  2. Raimundo Soto & Matías Tapia, 2001. "Seasonal cointegration and the stability of the demand for money," Working Papers Central Bank of Chile 103, Central Bank of Chile.
  3. Bredin, Don & Cuthbertson, Keith, 2001. "Money Demand in the Czech Republic since Transition," Research Technical Papers 3/RT/01, Central Bank of Ireland.
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  9. Eduard J. Bomhoff, 1991. "Stability of Velocity in the Major Industrial Countries: A Kalman Filter Approach," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 626-642, September.
  10. Robert Simmons, 1992. "An Error-correction Approach to Demand for Money in Five African Developing Countries," Journal of Economic Studies, Emerald Group Publishing, vol. 19(1), pages 29-47, January.
  11. Lutkepohl, Helmut & Terasvirta, Timo & Wolters, Jurgen, 1999. "Investigating Stability and Linearity of a German M1 Money Demand Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 511-25, Sept.-Oct.
  12. Ball, Laurence, 2001. "Another look at long-run money demand," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 31-44, February.
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  14. Neil R. Ericsson & David F. Hendry & Grayham E. Mizon, 1998. "Exogeneity, cointegration, and economic policy analysis," International Finance Discussion Papers 616, Board of Governors of the Federal Reserve System (U.S.).
  15. Brand, Claus & Cassola, Nuno, 2000. "A money demand system for euro area M3," Working Paper Series 0039, European Central Bank.
  16. Chadha, Jagjit S & Haldane, Andrew G & Janssen, Norbert G J, 1998. "Shoe-Leather Costs Reconsidered," Economic Journal, Royal Economic Society, vol. 108(447), pages 363-82, March.
  17. Dickey, David A & Rossana, Robert J, 1994. "Cointegrated Time Series: A Guide to Estimation and Hypothesis Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 325-53, August.
  18. Mulligan, Casey B & Sala-i-Martin, Xavier, 1996. "Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy," CEPR Discussion Papers 1358, C.E.P.R. Discussion Papers.
  19. Bas Van Aarle & Nina Budina, 1996. "Currency substitution and seignorage in eastern europe," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(3), pages 279-298.
  20. Subramanian S. Sriram, 1999. "Survey of Literatureon Demand for Money; Theoretical and Empirical Work with Special Reference to Error-Correction Models," IMF Working Papers 99/64, International Monetary Fund.
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