Broad Money Demand and Financial Liberalization in Greece
International Monetary Fund, Research Department, 1996 - Demand for money - 49 pages
This paper develops a constant, data-coherent, error correction model for broad money demand (M3) in Greece. The model contributes to a better understanding of the effects of monetary policy in Greece, and of the portfolio consequences of financial innovation in general. The broad monetary aggregate M3 was targeted until recently, and current Greek monetary policy still uses such aggregates as guidelines, yet analysis of this aggregate has been dormant for over a decade. Inspite of large fluctuations in the inflation rate, introduction of new financial instruments, and liberalization of the financial system, the estimated model is remarkably stable. The dynamics of money demand are important, with price and income elasticities being much smaller in the short run than in the long run.
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The interest rate on Tbills and net interest rates for demand deposits
time deposits and repos
The ratio of outstanding Treasury bills to M3 and the interest rate spreads
11 other sections not shown
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adjustment alternative assets autoregressive distributed lag bank bonds Bank of Greece broad money Chow statistics cointegrating vector components of M3 constant deposits RT deregulation disequilibrium Dolado Doornik Drachmas dynamics eigenvalue empirical Engle-Granger procedure equation 12 equation standard error error correction model error correction term exchange rate F statistic Figure financial liberalization fourth-order fraction Greece Table growth rates Hendry and Ericsson income homogeneity interest rates Johansen lag length long-run solution Lucas critique monetary aggregates money demand equation money demand function money demand relation money holdings Monthly Statistical Bulletin multivariate nominal money null hypothesis null order PCGive percent plots quarterly rates of return real money real output recursive estimates reduction repos repurchase agreements restrictions sample savings deposits Schwarz criterion seasonal dummies Section semi-elasticity significant spreads stationarity statistics for testing synthetic swaps Treasury bills unit root vector autoregression weak exogeneity withholding tax zero