Shortages, interest rates, and money demand in Poland, 1969-1995

Erwin Nijsse and Elmer Sterken

No 25, Working Papers from Centre for Economic Research, University of Groningen and University of Twente

Abstract: The paper estimates a household money demand function for Poland from 1969 to 1995. Contrary to theoretical belief and earlier empirical evidence portfolio arguments are found to be significant. Despite regime shifts during the 1980s and full liberalization of the Polish economy in the beginning of 1990, cointegration relationships are found between broad real money holdings, real household income, an interest rate on an alternative asset, the inflation rate and shortage of goods. Because Poland knew severe policy shocks and monetary data show a development from a cash to a savings economy, extensive attention is paid to parameter constancy and stability of the cointegration relationships. Tests generally confirm stability of long-run income and interest elasticities. Short-run money demand estimates illustrate expectations of increased income and interest elasticities, as well as an increasingly active adjustment behavior. Some implications of our main findings for monetary stabilization policy are discussed.

Keywords: money demand; cointegration; shortage economies (search for similar items in EconPapers)
JEL-codes: C52 E21 E42 E58 P23 (search for similar items in EconPapers)
Date: 1996-02
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Citations: View citations in EconPapers (2)

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