Money Demand in an EU Accession Country: A Vecm Study of Croatia

24 Pages Posted: 8 May 2006

See all articles by Dario Cziráky

Dario Cziráky

Institute for Development and International Relations (IRMO), Croatia

Max Gillman

Central European University (CEU) - Department of Economics

Abstract

The paper estimates the money demand in Croatia using monthly data from 1994 to 2002. A failure of the Fisher equation is found, and adjustment to the standard money-demand function is made to include the inflation rate as well as the nominal interest rate. In a two-equation cointegrated system, a stable money demand shows rapid convergence back to equilibrium after shocks. This function performs better than an alternative using the exchange rate instead of the inflation rate as in the "pass-through" literature on exchange rates. The results provide a basis for inflation rate forecasting and suggest the ability to use inflation targeting goals in transition countries during the EU accession process. Finding a stable money demand also limits the scope for central bank "inflation bias."

Suggested Citation

Cziráky, Dario and Gillman, Max, Money Demand in an EU Accession Country: A Vecm Study of Croatia. Bulletin of Economic Research, Vol. 58, No. 2, pp. 105-127, April 2006, Available at SSRN: https://ssrn.com/abstract=891503 or http://dx.doi.org/10.1111/j.0307-3378.2006.00237.x

Dario Cziráky (Contact Author)

Institute for Development and International Relations (IRMO), Croatia ( email )

Ulica Farkasa Vukotinovica 2
P.O. Box 303
10000 Zagreb
Croatia
+385 91 560 6295 (Phone)
+385 1 4828 361 (Fax)

HOME PAGE: http://www.gdnet.org/middle.php?oid=189&zone=researcher&action=researcher

Max Gillman

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)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
25
Abstract Views
850
PlumX Metrics