Monetary Policy and Models of Currency Demand

Author/Editor:

Mariam El Hamiani Khatat

Publication Date:

February 16, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Two types of currency in circulation models are identified: (1) a first generation derived from the theory of money demand and (2) a second generation aimed at producing daily forecasts of currency in circulation. In this paper, we transform the currency demand function into a VAR to capture the dynamic link between interest rates and the demand for cash. We also apply ARIMA modeling to forecast the daily currency in circulation for Brazil, Kazakhstan, Morocco, New Zealand, and Sudan. Our empirical work shows that some of the conclusions in the economic literature on the impact of interest rates on the demand for currency do not necessarily hold, and that central banks would benefit from running both generations of currency in circulation models. The fundamental longer-run determinants of the demand for cash are distinct from its short-run determinants.

Series:

Working Paper No. 18/28

Subject:

English

Publication Date:

February 16, 2018

ISBN/ISSN:

9781484341926/1018-5941

Stock No:

WPIEA2018028

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

55

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