Money demand and disinflation in selected CEECs during the accession to the EU

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Abstract:

A panel data set for six countries (Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) is used to estimate money demand with panel cointegration methods over the recent disinflation period. The basic money demand model is able to convincingly explain the long-run dynamics of M2 in the selected countries. However, money demand is found to have been significantly determined by the euro area interest rates and the exchange rate against the euro, which indicates possible instability of money demand functions in the Central and Eastern European countries. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840601019323

Affiliations: Department of Economics; CESifo, University of Munich, and Department of Applied Mathematics and Statistics, Comenius University, Bratislava, Slovakia

Publication date: April 1, 2009

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