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

Author/Editor:

Jose De Gregorio ; Peter Wickham ; Patricio Arrau ; Carmen Reinhart

Publication Date:

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:

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.

Series:

Working Paper No. 91/45

Subject:

English

Publication Date:

May 1, 1991

ISBN/ISSN:

9781451974218/1018-5941

Stock No:

WPIEA0451991

Format:

Paper

Pages:

40

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