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

Year: 1995

Type: article

Abstract: Traditional specifications of money demand have been commonly plagued 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 the demand for money for ten developing countries, employing various proxies for financial innovation, 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.

Source: Journal of Development Economics

DOI: 10.1016/0304-3878(94)00066-l

Authors: Patricio Arrau, José De Gregorio, Carmen M. Reinhart, Peter Wickham

Institutions: Georgetown University, International Monetary Fund

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,590