The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation

40 Pages Posted: 15 Feb 2006

See all articles by Patricio Arrau

Patricio Arrau

World Bank

Jose de Gregorio

Central Bank of Chile; Universidad de Chile; National Bureau of Economic Research (NBER)

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Peter Wickham

International Monetary Fund (IMF)

Date Written: May, 1991

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 money demand for ten developing countries employing various proxies for the innovation process 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.

JEL Classification: E41, E44

Suggested Citation

Arrau, Patricio and de Gregorio, Jose and Reinhart, Carmen M. and Wickham, Peter, The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation (May, 1991). IMF Working Paper, Vol. , pp. 1-40, 1991. Available at SSRN: https://ssrn.com/abstract=884790

Patricio Arrau (Contact Author)

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

Jose De Gregorio

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Universidad de Chile ( email )

Ministry of Finance Teatinos l20 - Piso l2
Santiago
Chile

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Wickham

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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