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Evidence of the Long-run Equilibrium between Money Demand Determinants in Croatia
Abstract:In this paper real money demand function is analyzed within multivariate time-series framework. Cointegration approach is used (Johansen procedure) assuming interdependence between money demand determinants, which are nonstationary variables. This will help us to understand the behavior of money demand in Croatia, revealing the significant influence between endogenous variables in vector autoregrression system (VAR), i.e. vector error correction model (VECM). Exogeneity of the explanatory variables is tested. Long-run money demand function is estimated indicating slow speed of adjustment of removing the disequilibrium. Empirical results provide the evidence that real industrial production and exchange rate explains the most variations of money demand in the long-run, while interest rate is significant only in short-run.
Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1074389Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1678
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