The Demand for Money in Developing Countries: Assessing the Role of Financial innovation

Jose De Gregorio, Peter Wickham, Patricio Arrau and Carmen Reinhart

No 1991/045, IMF Working Papers from International Monetary Fund

Abstract: Traditional specifications of money demand have been commonly plagued by persistent overprediction, implausible parameter estimates, and highly autocorrelated errors. This paper argues that some of those problems stem from the failure to account for the impact of financial innovation. We estimate money demand for ten developing countries employing various proxies for the innovation process and provide an assessment of the relative importance of this variable. We find that financial innovation plays an important role in determining money demand and its fluctuations, and that the importance of this role increases with the rate of inflation.

Keywords: WP; opportunity cost; opportunity cost variable; money demand function; money decision; money holding; business money demand; money demand specification; money balance; opportunity cost of money; Demand for money; Inflation; Consumption; Currencies; Income (search for similar items in EconPapers)
Pages: 40
Date: 1991-05-01
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Citations: View citations in EconPapers (28)

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Related works:
Journal Article: The demand for money in developing countries: Assessing the role of financial innovation (1995)
Working Paper: The demand for money in developing countries: Assessing the role of financial innovation (1995)
Working Paper: The demand for money in developing countries: Assessing the role of financial innovation (1991)
Working Paper: The demand for money in developing countries: assessing the role of financial innovation (1991)
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