engleski

Does Economic Crisis Affect the Demand for Money: Evidence from Croatia?

The purpose of this paper is to examine whether there are significantly different characteristics of the demand for money in Croatia in the period before and during the recession. The paper applies error correction model (ECM) and autoregressive distributed lag (ARDL) approach, estimating model 1 for the period of growth, and model 2 for the period of recession. Structural stability of these models was tested by cumulative sum and cumulative sum of square tests. Comparing the results of the models, the substantial changes in the function of the demand for money has been detected. Namely, the research shows that variables: interest rates (IR), real effective exchange rate (REER) and inflation (CPI) are significant in model 1, while the variable industrial production (IP) is not significant. In model 2 only industrial production (IP) and inflation (CPI) have been found to be statistically significant with the adequate sign.

money demand, economic crisis, error correct

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