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Money Demand during Hyperinflation and Stabilization: Bolivia, 1980-88

Carlos Asilis, Patrick Honohan and Paul McNelis

Economic Inquiry, 1993, vol. 31, issue 2, 262-73

Abstract: This paper examines the demand for money in Bolivia during the 1980s, a decade of extreme instability with annual inflat ion rates reaching over 20,000 percent, and a subsequent stabilization, with annual rates falling to less than 25 percent and remaining so f or more than five years. The authors' empirical analysis makes use of error-correction approaches, time-varying-parameter estimation with Kalman filtering, and GARCH models of expected inflation and inflati on variance. They find that expected inflation and inflation uncertainty both matter for money demand. Time-varying estimates sho w that the reaction to monetary disequilibria was significantly faster during hyperinflation. Copyright 1993 by Oxford University Press.

Date: 1993
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Handle: RePEc:oup:ecinqu:v:31:y:1993:i:2:p:262-73