Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece

33 Pages Posted: 14 Jul 2022

Date Written: February 1, 2003

Abstract

This paper examines the behaviour of the demand for money in Greece during 1976:1-2000:4, a period that included many of the influences that cause money-demand instability. Two empirical methodologies, vector error correction (VEC) modelling and second-generation random coefficient (RC) modelling, are used to estimate the demand for money. The coefficients of both the VEC and RC procedures support the hypothesis that the demand for money becomes more responsive to both the own rate of return on money balances and the opportunity cost of holding money because of financial deregulation. In general, both procedures also support the hypothesis that the income elasticity of money demand declines over time as a result of technological improvements in the payments system and the development of money substitutes, which lead to economies of scale in holding money.

Keywords: Money demand, VEC, random coefficient estimation

JEL Classification: C20; E41

Suggested Citation

Brissimis, Sophocles N. and Hondroyiannis, G. and Swamy, Paravastu A.V.B. and Tavlas, George, Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece (February 1, 2003). Bank of Greece Working Paper No. 1, Available at SSRN: https://ssrn.com/abstract=4161529 or http://dx.doi.org/10.2139/ssrn.4161529

Sophocles N. Brissimis

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

G. Hondroyiannis

Bank of Greece ( email )

21 E. Venizelos Avenue
GR-10250 Athens
Greece
+011 301 3202429 (Phone)
+011 301 3233025 (Fax)

Paravastu A.V.B. Swamy

Bureau of Labor Statistics

2 Massachusetts Avenue, NE
Washington, DC 20212
United States

George Tavlas (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR-10250 Athens
Greece
+30 10 323 7224 (Phone)
+30 10 323 3025 (Fax)

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