The Demand for Money in Developing Countries: Assessing the Role of Financial innovation
May 1, 1991
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Summary
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.
Subject: Consumption, Currencies, Demand for money, Income, Inflation, Money, National accounts, Prices
Keywords: business money demand, Consumption, Currencies, Demand for money, Income, Inflation, money balance, money decision, money demand function, money demand specification, money holding, opportunity cost, opportunity cost of money, opportunity cost variable, WP
Pages:
40
Volume:
1991
DOI:
Issue:
045
Series:
Working Paper No. 1991/045
Stock No:
WPIEA0451991
ISBN:
9781451974218
ISSN:
1018-5941
