Money Demand and Disinflation in Selected CEECs during the Accession to the EU

Fidrmuc, Jarko (October 2006): Money Demand and Disinflation in Selected CEECs during the Accession to the EU. Discussion Papers in Economics 2006-31

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 CEECs. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro.

• Item Type: Paper (Discussion Paper)
• Keywords: Money demand, panel unit root tests, panel cointegration, direct inflation targeting, CEECs
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Money; Economics > Discussion Papers in Economics > Statistical Methods
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: E41, E58, C23
• Language: English