The Demand for Money During High Inflation Episodes: Some Latin American Evidenceon the Cagan Model

May 1, 1991

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the demand for money under conditions of very high inflation in Argentina, Bolivia, Brazil, Chile and Peru during the 1970s and 1980s. We test whether the monetary and inflationary experiences of these countries can be adequately characterized by the Cagan (1956) model, using an econometric procedure which is not reliant on any particular assumption concerning expectations formation except that forecasting errors are stationary. We also examine the importance of foreign asset substitution in domestic portfolios.

Subject: Demand for money, External position, Foreign assets, Government debt management, Inflation, Money, Price controls, Prices, Public financial management (PFM)

Keywords: Bolivia program, Demand for money, exchange premium, expected return, forecasting inflation, Foreign assets, Government debt management, Inflation, inflation rate series, money balance, money holding, money series, Price controls, rate depreciation, rate of inflation, WP

Pages:
22
Volume:
1991
DOI:
https://doi.org/10.5089/9781451846683.001
Issue:
048
Series:
Working Paper No. 1991/048
Stock No:
WPIEA0481991
ISBN:
9781451846683
ISSN:
1018-5941

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