An Explanation of Money Demand During Central European Transition: Yugoslavia, 1994-1998

Central European University Working Paper No. 8/2000

Posted: 13 Mar 2001

See all articles by Max Gillman

Max Gillman

Central European University (CEU) - Department of Economics

Miroljub Labus

University of Belgrade

Date Written: 2000

Abstract

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

Gillman, Max and Labus, Miroljub, An Explanation of Money Demand During Central European Transition: Yugoslavia, 1994-1998 (2000). Central European University Working Paper No. 8/2000, Available at SSRN: https://ssrn.com/abstract=253032

Max Gillman (Contact Author)

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary
+36 1 327 3227 (Phone)
+36 1 327 3232 (Fax)

Miroljub Labus

University of Belgrade ( email )

Studentski trg 1
Belgrade, 11000
Republic of Serbia

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