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The demand for currency in the presence of indexed money: the case of Brazil

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  • Joao Ricardo Faria

Abstract

The presence of indexed money modifies the demand for currency equation. An optimal demand for currency is derived from a transaction cost model, which includes indexed money. This money demand considers inflation an argument along with output and nominal interest rate. The estimation for the Brazilian case shows that inflation and nominal interest rates are found negatively and output positively related to the demand for narrow money. The parameter stability tests show that the disequilibrium error should not reflect the impact of inflation.

Suggested Citation

  • Joao Ricardo Faria, 2000. "The demand for currency in the presence of indexed money: the case of Brazil," Applied Economics Letters, Taylor & Francis Journals, vol. 7(1), pages 41-43.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:1:p:41-43
    DOI: 10.1080/135048500352077
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    References listed on IDEAS

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    1. Octavio A. F. Tourinho, 2015. "The Demand for Money in High Inflation Processes," Discussion Papers 0051, Instituto de Pesquisa Econômica Aplicada - IPEA.
    2. Elcyon Caiado Rocha Lima & Ricardo Sandes Ehlers, 2015. "The Variance of Inflation and the Stability of the Demand for Money in Brazil: a Bayesian Approach," Discussion Papers 0067, Instituto de Pesquisa Econômica Aplicada - IPEA.
    3. Francisco Carneiro & Joao Faria, 1997. "Currency substitution and indexed money," Applied Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 163-166.
    4. MacDonald, Ronald & Taylor, Mark P., 1992. "A stable US money demand function, 1874-1975," Economics Letters, Elsevier, vol. 39(2), pages 191-198, June.
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