Money demand in the Dominican Republic
Authors: Carruth, Alan; Sanchez-Fung, Jose Roberto
Source: Applied Economics, Volume 32, Number 11, 10 September 2000 , pp. 1439-1449(11)
Abstract:This paper investigates a demand for money relationship for the Dominican Republic. The financial system of the Dominican Republic is underdeveloped, and there are no suitable domestic data on the opportunity cost of holding money. Economic links with the USA suggest a possible role for a foreign interest rate effect and a currency substitution effect in the demand for domestic money. A long-run demand for money relationship is developed from the perspective of alternative estimation methodologies, and it is shown that a 'literature standard' specification augmented by foreign monetary variables is robust. The ensuing short-run dynamic model is adequate, stable and suggests an important role for expected inflation, and a real bilateral exchange rate with the USA. A number of policy implications for the Dominican Republic are drawn from the results.
Document Type: Research Article
Publication date: September 10, 2000