Exchange rate volatility and demand for money in less developed countries

Sahar Bahmani ()

Journal of Economics and Finance, 2013, vol. 37, issue 3, 442-452

Abstract: One implication of currency substitution is that the exchange rate could serve as another determinant of the demand for money. Indeed, many studies have justified this empirically for the majority of countries. If the exchange rate serves as a determinant of the demand for money, exchange rate volatility could also influence money demand. By using annual data from 15 less developed countries and the bounds testing approach, we show that exchange rate volatility has short-run effects on the demand for real M2 monetary aggregate in LDCs. However, in most countries, short-run effects are not sustained. Copyright Springer Science+Business Media, LLC 2013

Keywords: Money Demand; Exchange Rate Volatility; Bounds Testing; Less Developed Countries; E41; F30 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s12197-011-9190-y

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