BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 14/2007:
Money demand in post-crisis Russia: De-dollarisation and re-monetisation
Iikka Korhonen ()
and Aaron Mehrotra ()
Abstract: Estimating money demand functions for Russia following the
1998 crisis, we find a stable money demand relationship when augmented by a
deterministic trend signifying falling velocity. As predicted by theory,
higher income boosts demand for real rouble balances and the income
elasticity of money is close to unity. Inflation affects the adjustment
towards equilibrium, while broad money shocks lead to higher inflation. We
also show that exchange rate fluctuations have a considerable influence on
Russian money demand. The results indicate that Russian monetary
authorities have been correct in using the money stock as an information
variable and that the strong influence of exchange rate on money demand is
likely to continue despite de-dollarisation of the Russian economy.
Keywords: money demand; vector error correction models; dollarisation; Russia; (follow links to similar papers)
JEL-Codes: E31; E41; E51; P22; (follow links to similar papers)
32 pages, June 29, 2007
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