Tests of Functional Forms, Currency Substitution, and Capital Mobility of Czech Money Demand Function

Yu Hsing

Prague Economic Papers, 2006, vol. 2006, issue 4, 291-299

Abstract: The demand for real M2 in the Czech Republic is positively influenced by real output and negatively associated with the deposit rate, the koruna/euro exchange rate, and the euro interest rate. The coefficient of real output for the demand for real M1 is insignificant. Hence, depreciation of the koruna or a higher euro interest rate would help raise Czech real output. The Box-Cox transformation test shows that the log-linear form for real M1 and M2 demand cannot be rejected at the 5% level while the linear form for real M1 and M2 demand can be rejected at the 5% level. The CUSUM and CUSUMSQ tests show that parameters in the demand for both real M1 and M2 demand are stable. In comparison, real M2 is a better monetary aggregate.

Keywords: currency substitution; wealth effect; Box-Cox transformation; capital mobility effect; cost of borrowing effect; stability tests (search for similar items in EconPapers)
JEL-codes: E41 O52 (search for similar items in EconPapers)
Date: 2006
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DOI: 10.18267/j.pep.289

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