Reinhart, Carmen and Arrau, Patricio and DeGregorio, Jose and Wickham, Peter (1991): The demand for money in developing countries: Assessing the role of financial innovation.
Download (2MB) | Preview
Traditional specifications of money demand have been commonly plagU4:!d by persistent overprediction, implausible parameter estimates, and highly autocorrelated errors. This paper argues that some of those problems stem from the failure to account for the impact of financial innovation. We estimate money demand for ten developing countries employing various proxies for the innovation process and provide an assessment of the relative importance of this variable. We find that financial innovation plays an important role in determining money demand and its fluctuations, and that the importance of this role increases with the rate of inflation.
|Item Type:||MPRA Paper|
|Original Title:||The demand for money in developing countries: Assessing the role of financial innovation|
|Keywords:||money demand inflation interest rates technological innovation financial|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
|Depositing User:||Carmen Reinhart|
|Date Deposited:||03. Mar 2009 08:42|
|Last Modified:||17. Feb 2013 22:05|
Arrau, Patricio and Jose De Gregorio, "Financial Innovation and Money Demand: Theory and Empirical Im"flementation ," Working Paper No. 585,World Bank, (1991).
Bhargava, A., "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studjes, (1986), pp. 369-384.
Cagan, P., "The Dynamics of Hyper-Inflation", in M. Friedman (ed.)Studies of the Quantit~ Theory of Money, Chicago: Chicago University Press, (1956).
Cooley, T.F. and E. Prescott, "An Adaptive Regression Model," International Economic Review, (1973a), pp. 36/f-371.
Cooley, T.F. and E. Prescott, "Test of an Adaptive Regression Model," Review of Economics and Statistics, (1973b), pp. 248-256,
Darrat, Ali F., "Monetization and Sta')ilityof Money Demand in Developing Countries: The Latin American C'ise,"Savings and Development, (1986), pp. 59-72.
Darrat, Ali F. and Michael A. Webb, "Financial Changes and Interest Elasticity of Money Demand: Further Tests of the Gurley Shaw Thesis," Journal of Development Studies, (1986), pp. 724-730.
De Gregorio, Jose, "Welfare Costs of Inflation, Seignorage, and Financial Innovation," IMF Working Paper Number WP/91/l, (1991).
Dickey D.A. and W.A. Fuller, "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, (1981), pp. 1057-1072.
Engle, Robert F. and C.W.J. Granger, "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, (1987),pp. 251-276.
Engle, Robert F. and B.S. Yoo, "Forecasting and Testing Co-integrated Systems," Journal of Econometrics, (1987), pp. 143-159.
Goldfeld, Stephen M., "The Case of Missing Money," Brookings Papers on Economic Activitx, (1976), pp. 683-730.
Goldfeld, Stephen M. and Daniel E. Sichel, "The Demand for Money," in B.Friedman and F. Hanhn, (eds.) Hcndbook of Monetary Economics, Vol. I,(1990).
Guidotti, P.E., "Currency Substitution and Financial Innovation," IMF Working Paper WP/89/39, (1989).
Hendry, D.F. and G.E. Mizon, "Serial Correlation as a Convenient Simplification, Not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, (1978), pp. 549-563.
Judd, John P. and John L. Scadding, "The Search for a Stable Money Demand Function," Journal of Economic Literature, (1982), pp. 993-1023.
Lieberman, Charles, "The Transaction Demand for Money and Technological Change," Review of Economics and Statistics, (1977), pp. 307-317.
Melnick, Rafi, "The Demand for Money in Argentina 1978-87: Before and after the Austral Program," mimeo, (1989).
Moore, George R., Richard Porter, and David H. Small, "Modelling the Disaggregated Demand for M2 and Ml: The U.S. Experience in the 1980s," in Board of Governors of the FederciL Reserve System, Financial Sectors in Open Economies: Empirical All§1]'sisand Policy Issues, (Washington:Board of Governors), (1990).
Oehs, Jack and Mark Rush, "The Persistence of Interest-Rate Effects on the Demand for Currency," Journal of Money Credit and Banking, (1983), pp.499-505.
Rossi, Jose W., "The Demand for Money in Brazil: What Happened in the 1980s," Journal of Development Economics, (1989), pp. 357-367.
Stockman, A. C., "Anticipated Inflation and the Capital Stock in a Cash-in-Advance Economy", Journal of Monetary Economics 8, (1981), pp. 387-393.
Sundararajan, V. and Tomas J.T. Balifio, "Issues in Recent Banking Crises in Developing Countries," IMF Working :PaperNumber WP/90/19. (1990).
Wilbratte, Barry J., "Some Essential Differences in the Demand for Money by Households and by Firms," Journal of Finance, (1977), pp. 1091-1099.