Money-in-the-Utility-Function: Model Simulations and Money Demand Estimation in the Case of the Republic of Macedonia

• Authors: Mile Ivanov , Mihail Petkovski , Elena Naumovska
• Languages of publication: EN

Abstracts

EN

This paper aims to reassess and analyze the dynamic interactions between money, prices and economic activity in the case of the Republic of Macedonia. The first part of the paper simulates the property of the superneutrality of money, based on Sidrauski’s (1967) framework. The second part presents the money demand estimations on the monetary aggregate M2 for the period from 2002 to 2012, using the cointegration approach. Following Cziráky and Gillman (2006), we examine the validity of the Fisher equation in the case of Macedonia. The Fisher equation does not hold in the case of Macedonia, so the inflation rate must be included in the money demand specification. The estimated cointegration equation is in line with economic theory. The cointegration equation shows income elasticity less than unity (0,81), small and negative interest rate semi-elasticity (-0.17) and negative elasticity with respect to inflation. The short-run dynamics reveal that only 2,70% of the disequilibrium is corrected in a single quarter. The properties of stability imply that the M2 aggregate may serve as a proper policy indicator.

Keywords

EN

money- in-the-utility function; demand for money; cointegration

• Publisher: Sciendo
• Journal: South East European Journal of Economics and Business
• Year: 2015
• Volume: 9
• Issue: 2
• Pages: 7-20

Dates

published

2015-03-01

online

2015-03-13

Contributors

author

Mile Ivanov

• Faculty of Economics, Ss Cyril and Methodius University in Skopje

author

Mihail Petkovski

• Faculty of Economics, Ss Cyril and Methodius University in Skopje

author

Elena Naumovska

• Faculty of Economics, Ss Cyril and Methodius University in Skopje

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Identifiers

DOI

10.2478/jeb-2014-0006