The demand for money in developing countries: Assessing the role of financial innovation

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.

Abstract

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
• Language: English
• 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

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