Money demand in an EU accession country: a VECM study of Croatia

Gillman, Max and Cziraky, Dario 2005. Money demand in an EU accession country: a VECM study of Croatia. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University. Available at: http://business.cardiff.ac.uk/research/working-pap...

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Abstract

The paper estimates the money demand in Croatia using monthly data from 1994 to 2002. A failure of the Fisher equation is found and adjustment to the standard money demand function is made to include the ináation rate as well as the nominal interest rate. In a two-equation cointegrated system, a stable money demand shows rapid convergence back to equilibrium after shocks. This function performs better than an alternative using the exchange rate instead of the ináation rate, as in the "pass-through" literature on exchange rates. The results provide a basis for inflation rate forecasting and suggest the ability to use inflation targeting goals in transition countries during the EU accession process. Finding a stable money demand also limits the scope for central bank "inflation bias".

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HG Finance
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	19 Mar 2016 23:14
URI:	https://orca.cardiff.ac.uk/id/eprint/43939

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