Money Demand in Post-Crisis Russia: De-Dollarisation and Re-Monetisation
Posted: 4 Sep 2007 Last revised: 22 Oct 2007
Date Written: June 29, 2007
Estimating money demand functions for Russia following the 1998 crisis, we find a stable money demand relationship when augmented by a deterministic trend signifying falling velocity. As predicted by theory, higher income boosts demand for real rouble balances and the income elasticity of money is close to unity. Inflation affects the adjustment towards equilibrium, while broad money shocks lead to higher inflation. We also show that exchange rate fluctuations have a considerable influence on Russian money demand. The results indicate that Russian monetary authorities have been correct in using the money stock as an information variable and that the strong influence of exchange rate on money demand is likely to continue despite de-dollarisation of the Russian economy.
Keywords: money demand, vector error correction models, dollarisation, Russia
JEL Classification: E31, E41, E51, P22
Suggested Citation: Suggested Citation