Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece

Sophocles Brissimis, George Hondroyiannis, P.A.V.B. Swamy and George Tavlas
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P.A.V.B. Swamy: US Bureau of Labour Statistics

No 1, Working Papers from Bank of Greece

Abstract: This paper examines the behaviour of the demand for money in Greece during 1976:1-2000:4, a period that included many of the influences that cause money-demand instability. Two empirical methodologies, vector error correction (VEC) modelling and second-generation random coefficient (RC) modelling, are used to estimate the demand for money. The coefficients of both the VEC and RC procedures support the hypothesis that the demand for money becomes more responsive to both the own rate of return on money balances and the opportunity cost of holding money because of financial deregulation. In general, both procedures also support the hypothesis that the income elasticity of money demand declines over time as a result of technological improvements in the payments system and the development of money substitutes, which lead to economies of scale in holding money.

Keywords: Money demand; VEC, random coefficient estimation (search for similar items in EconPapers)
JEL-codes: C20 E41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2003-02
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Citations: View citations in EconPapers (25)

Published in Oxford Bulletin of Economics and Statistics, 2003, 65 (5), pp. 605-628

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