An Explanation of Money Demand During Central European Transition: Yugoslavia, 1994-1998
Central European University Working Paper No. 8/2000
Posted: 13 Mar 2001
Date Written: 2000
The paper offers an explanation of money demand in a transition nation, the new Yugoslavia, as based on a general equilibrium neoclassical monetary model. The estimated equation is derived from the cash-in-advance economy that includes a credit services sector to capture alternative means of exchange. We use monthly data for the high inflation period of 1994-1998 period, starting just after a structural break due to the 1992-1993 hyperinflation. The evidence offers support for the cash-in-advance model. This includes a price of exchange substitutes so as to capture shifts in the economy's exchange technology due to deregulation and innovation in the finance sector. Without the substitute price variables, money demand appears to be instable while the inclusion of the substitute price provides a statistically significant theory of the money demand function.
Keywords: money demand, Yugoslavia, credit services, cash-in-advance
JEL Classification: E13, E41, C13, O42
Suggested Citation: Suggested Citation