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Abstract
This article empirically models the relationship between the demand for money and a set of determinants, using the autoregressive distributed lag (ARDL) bounds-testing approach proposed by Pesaran, Shin, and Smith. We test this relationship in a country-specific framework of six Central and East European countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, and Romania) over the past twenty years. The results confirm the existence of a long-term cointegration relationship between the demand for money and its determinants, except in Bulgaria and Croatia. We identified a significant currency substitution effect in Bulgaria, Croatia, and Hungary, whereas in the Czech Republic, the wealth effect is stronger.
ACKNOWLEDGMENT
Useful comments offered by participants in the INFER Workshop “Rethinking Development and Macroeconomic Policy,” Cluj-Napoca, Romania, April 2017, and the INFER Annual Conference, Bordeaux, France, June 2017, and anonymous referees are gratefully acknowledged.
Notes
1. Tables with results of the unit-root tests are available from the authors upon request.
2. Due to the large volume of estimations, short-term coefficients are not reported in the article, but results are available from the authors upon request.