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The roles of the exchange rate and the foreign interest rate in Estonia's money demand function and policy implications

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  • Yu Hsing

Abstract

The demand for real M2 in Estonia is positively influenced by real income, real stock prices and the depreciation of the kroon, and negatively associated with the deposit rate, the euro interest rate and the expected inflation rate. Hence, a higher euro interest rate would help raise Estonian real output, and the depreciation of the kroon may or may not raise real output. The Box–Cox transformation test shows that the double-log form cannot be rejected at the 5% level while the linear form can be rejected at the 5% level. The CUSUMSQ test shows that parameters in the money demand function are stable.

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  • Yu Hsing, 2007. "The roles of the exchange rate and the foreign interest rate in Estonia's money demand function and policy implications," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 3(4), pages 221-224.
    • Handle: RePEc:taf:raflxx:v:3:y:2007:i:4:p:221-224
    DOI: 10.1080/17446540600706916
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