Impacts of the exchange rate and the foreign interest rate on the Argentine money demand function

Abstract

This article finds that the demand for real M1 in Argentina has a positive relationship with real income and peso depreciation and a negative relationship with the domestic deposit rate, the foreign interest rate, and the expected inflation rate. Real stock prices do not affect the demand for real M1. The nonlinearity test shows that the double-log form cannot be rejected at the 1% level while the linear form can be rejected at the 1% level. The CUSUMSQ test shows that the money demand function is relatively stable.

Notes

¹ For several seminal works or review articles, see Tobin (1958), Chow (1966), Goldfeld (1973, 1976), Judd and Scadding (1982), Gordon (1984), Goldfeld and Sichel (1990) and Laidler (1990). For studies of the behaviour and stability of M2 in the US, see Small and Porter (1989), Hetzel and Mehra (1989), Hafer and Jansen (1991), Mehra (1993, 1997), Duca (2000), Carlson et al. (2000) and others. For international studies of the demand for money, see Fair (1987), Fase and Winder (1998), Bahmani-Oskooee and Techaratanachai (2001), Bahmani-Oskooee and Ng (2002), Bahmani-Oskooee and Chomsisengphet (2002), Bahmani-Oskooee and Rehman (2005) and others.