A COMPARATIVE STUDY FOR OPPORTUNITY COST OF HOLDING MONEY BETWEEN SELECTED DEVELOPING AND DEVELOPED COUNTRIES

Zahra Rouhani (), Mehdi Behname and Sayed Mahdi Mostafavi
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Zahra Rouhani: Sanabad University, Mashhad, Iran
Sayed Mahdi Mostafavi: Ferdowsi University of Mashhad (FUM), Mashhad, Iran

Romanian Economic Business Review, 2013, vol. 8, issue 4, 7-17

Abstract: This paper searches an appropriate proxy for opportunity cost of holding money. We apply a balance panel data for selected developed and developing countries during the period of 1990-2008. Three models have been estimated for each group of the countries. Both random and fixed effect models have been applied. The results show that inflation rate is a good proxy for opportunity cost of holding money in the developing countries. This fact is probably the caused of inefficiency in financial markets. However, for developed countries both inflation rate and interest rate should apply as opportunity cost of holding money. When interest rate is a good proxy for opportunity cost of holding money and bonds, we can conclude that there is a competitive market in the financial market. On the other hand, we can consider the inflation rate as a proxy for durable goods and foreign currency.

Keywords: Demand for money; Opportunity cost of holding money; Financial markets; panel data (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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