Money Demand in an EU Accession Country: A VECM Study of Croatia

Cziraky, Dario and Gillman, Max 2006. Money Demand in an EU Accession Country: A VECM Study of Croatia. Bulletin of Economic Research 58 (2) , pp. 105-127. 10.1111/j.0307-3378.2006.00237.x

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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 inflation 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 inflation 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:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	D History General and Old World > DR Balkan Peninsula H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions J Political Science > JN Political institutions (Europe)
Uncontrolled Keywords:	Accession; error correction; Fisher equation; money demand; multivariate cointegration
Publisher:	Wiley-Blackwell
ISSN:	0307-3378
Last Modified:	19 Mar 2016 23:09
URI:	https://orca.cardiff.ac.uk/id/eprint/40997

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