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The demand for money by private firms in a regulated economy: Theoretical underpinnings and empirical evidence for Germany 1960 - 1998


  • Bohl, Martin T.
  • Sell, Friedrich L.


Based on a cash-in-advance approach, this paper investigates theoretically the determinants of money holdings of firms under the conditions of a highly regulated labor market and analyses empirically the demand for money of German businesses during the period 1960-1998. As a result of our theoretical analysis the demand for cash balances by firms for shadow market activities depends among other things positively on the expected wage wedge. The empirical results show that the coefficient of the wage wegde has a positive sign in the long-run cointegrating relationship and is statistically significant positive in the short-run dynamics of the error correction model.

Suggested Citation

  • Bohl, Martin T. & Sell, Friedrich L., 2002. "The demand for money by private firms in a regulated economy: Theoretical underpinnings and empirical evidence for Germany 1960 - 1998," Working Papers in Economics 2002,3, Bundeswehr University Munich, Economic Research Group.
  • Handle: RePEc:zbw:ubwwpe:20023

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    More about this item


    Money Demand by Firms; Wage Wedge; Cash-in-Advance Model; Cointegration; Error-Correction; Geldnachfrage von Unternehmen; Cash-in-advance-Modell; Kointegration; FehlerKorrektur-Modell; Lohnzusatzkosten;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General


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