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Money demand in post-crisis Russia: De-dollarisation and re-monetisation

Iikka Korhonen and Aaron Mehrotra

No 14/2007, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: Estimating money demand functions for Russia following the 1998 crisis, we find a stable money demand relationship when augmented by a deterministic trend signifying falling velocity. As predicted by theory, higher income boosts demand for real rouble balances and the income elasticity of money is close to unity. Inflation affects the adjustment towards equilibrium, while broad money shocks lead to higher inflation. We also show that exchange rate fluctuations have a considerable influence on Russian money demand. The results indicate that Russian monetary authorities have been correct in using the money stock as an information variable and that the strong influence of exchange rate on money demand is likely to continue despite de-dollarisation of the Russian economy.

JEL-codes: E31 E41 E51 P22 (search for similar items in EconPapers)
Date: 2007-06-29
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Published in Published in Emerging Markets Finance and Trade 46. (2), 2010, 5-19

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