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Money Demand, PPP and Macroeconomic Dynamics in a Small Developing Economy

  • José R Sánchez-Fung


This paper aims at improving our understanding of macro-monetary phenomena in developing countries. Specifically, it analyses a six-variable model of the Dominican Republic by implementing the cointegrating VAR framework, using annual data for the period 1950-1999. The inquiry is able to identify money demand and PPP cointegrating relationships that are economically and statistically sensible, displaying half-life persistence profiles of approximately one and three years, respectively. Additionally, generalised impulse response functions observed after shocking the money demand relation suggest that there is scope for activist monetary policy, while those derived from perturbations to PPP show that real exchange rate depreciations generate both contractionary and inflationary developments.

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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 0015.

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Date of creation: Dec 2000
Date of revision:
Handle: RePEc:ukc:ukcedp:0015
Contact details of provider: Postal: School of Economics, University of Kent, Canterbury, Kent, CT2 7NP
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