Money Demand and Monetary Disequilibrium in Argentina (1963-2003)

Alejandro Gay

Research Center in Economics and Finance, National University of Córdoba and CONICET, Argentina.
E-mail address: gay@eco.unc.edu.ar

First draft: June 2004
This version: August 2004

This paper analyzes the demand for money in Argentina using the new open macroeconomic framework provided by the Redux Model. In a model with nontradable goods the fundamentals of money demand appear to be, not only, domestic product and interest rate, but also, net foreign assets, productivity differential and terms of trade. It is necessary to introduce these new fundamentals in the standard Error Correction Model of money demand in order to deal with Argentina's macroeconomic instability. The model shows that past currency crisis can be explained by disequilibrium in money demand market and volatility of money demand to external shocks.

Keywords: money demand, monetary disequilibrium, open-economy, cointegration, Argentina

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