The Demand for Money in A Small Island Economy: The Case of Barbados

Michael Howard
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Michael Howard: Department of Economics, University of the West Indies Cave Hill Campus, P.O. Box 64, St. Micheal, Barbados

Indian Economic Review, 2002, vol. 37, issue 2, 199-208

Abstract: This study estimates the demand for real money balances in Barbados for the period 1973 - 1998. The paper employs a cointegration and error correction modelling (ECM) approach. The results show that the demand for real money is a function of real income, inflation and the error correction mechanism. This means that real money balance holders restore these balances to the long-run relationship whenever they are in a short-run disequilibrium position. Inflation is exogenous in the money demand function. The policy implication of this finding is that the monetary authorities cannot control the inflation rate in a demand-centered money market.

Keywords: Money demand; Cointegration; Exogeneity; Small Economy (search for similar items in EconPapers)
JEL-codes: E41 E52 (search for similar items in EconPapers)
Date: 2002
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