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Tests of currency substitution, capital mobility and nonlinearity of Hungary's money demand function

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  • Wen-Jen Hsieh
  • Yu Hsing

Abstract

The demand for M2 in Hungary is positively associated with real output and the nominal effective exchange rate and negatively influenced by the deposit rate, the euro interest rate, and expected inflation rate. The coefficient of the euro interest rate for the demand for M1 is insignificant. Hence, depreciation of the forint or a higher euro interest rate would help raise Hungary's real output. The Box-Cox transformation shows that the log-linear form for M1 or M2 demand cannot be rejected at the 5% level while the linear form for M1 or M2 demand can be rejected at the 5% level. However, the log-linear form for M2 demand can be rejected at the 10% level. The CUSUM and CUSUMSQ tests show that M2 demand based on the Box-Cox model and M1 demand are relatively stable. Based on the mean absolute percent error and the Theil inequality coefficient, M2 demand based on the Box-Cox model yields better forecasting outcomes.

Suggested Citation

  • Wen-Jen Hsieh & Yu Hsing, 2009. "Tests of currency substitution, capital mobility and nonlinearity of Hungary's money demand function," Applied Economics Letters, Taylor & Francis Journals, vol. 16(9), pages 959-964.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:9:p:959-964
    DOI: 10.1080/13504850701222079
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    References listed on IDEAS

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    Cited by:

    1. Valentina-Ioana Mera & Monica Ioana Pop Silaghi & Camélia Turcu, 2020. "Economic Sentiments and Money Demand Stability in the CEECs," Open Economies Review, Springer, vol. 31(2), pages 343-369, April.
    2. ALBULESCU, Claudiu Tiberiu & PÉPIN, Dominique & MILLER, Stephen M., 2019. "The micro-foundations of an open economy money demand: An application to central and eastern European countries," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 33-45.
    3. Claudiu Albulescu & Dominique P'epin, 2016. "The loss of interest for the euro in Romania," Papers 1609.01900, arXiv.org.
    4. C. T. Albulescu & D. Pépin, 2019. "The money demand and the loss of interest for the euro in Romania," Applied Economics Letters, Taylor & Francis Journals, vol. 26(3), pages 196-201, February.
    5. Claudiu Albulescu & Dominique Pépin, 2016. "The loss of interest for the euro in Romania," Working Papers hal-01361214, HAL.
    6. Claudiu Tiberiu Albulescu & Dominique Pépin & Stephen Miller, 2016. "The micro-foundations of an open economy money demand: An application to the Central and Eastern European countries," Working Papers hal-01348842, HAL.

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