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Money Demand Estimations in Mexico and of its Stability 1986-2010, as well as Some Examples of its Uses

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  • Noriega Antonio E.
  • Ramos Francia Manuel
  • Rodríguez-Pérez Cid Alonso

Abstract

This paper presents an econometric analysis of the demand for the monetary aggregate M1 in Mexico. Using cointegration techniques, we identify both a stable long-run relationship between M1 and its determinants, and a statistically sound single-equation error-correction model. Results are used to carry out the following simple applications: (1) empirical determination of the value and stability of dual inflationary equilibria, given the observed seigniorage levels; (2) calculation of the seigniorage maximizing inflation rate, and (3) analysis of the potential relationship between a measure of excess money and inflation. Results indicate that the low inflation equilibrium is stable, and that the excess money indicator shows, in retrospective, some capacity in predicting inflationary pressures.

Suggested Citation

  • Noriega Antonio E. & Ramos Francia Manuel & Rodríguez-Pérez Cid Alonso, 2015. "Money Demand Estimations in Mexico and of its Stability 1986-2010, as well as Some Examples of its Uses," Working Papers 2015-13, Banco de México.
    • Handle: RePEc:bdm:wpaper:2015-13
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    More about this item

    Keywords

    Demand for money; seigniorage; inflation; dual inflationary equilibria; cointegration; general to specific; money gap;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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