The demand for money in developing countries: assessing the role of financial innovation

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

No 721, Policy Research Working Paper Series from The World Bank

Abstract: Traditional specifications of money demand have commonly been plagued by persistent overprediction, implausible parameter estimates, andhighly autocorrelated errors. The authors argue that some of these problems stem from the failure to account for the impact of financial innovation. They estimate money demand for ten developing countries, using various proxies for financial innovations. They also assess the relative importance of this variable, finding financial innovation can be better modeled as a stochastic (random-walk) trend rather than a deterministic (time) trend. Financial innovation plays an important role in determining fluctuations of the demand for money. The importance of this role increases with the rate of inflation.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Fiscal&Monetary Policy; Inequality; Energy and Environment (search for similar items in EconPapers)
Date: 1991-07-31
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Citations: View citations in EconPapers (45)

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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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