High Inflation Rates and the Long-Run Money Demand Function: Evidence from Cointegration Tests

摘要

This paper attempts to determine whether there exists a stationary long-run money demand function in Argentina, Israel, and Mexico. Tests based on the Johansen method of Cointegration reveal strong support for a stationary money demand function in the long run in all three countries. This result only holds when the annualized rate of change of the exchange rate (currency depreciation) is included in the money demand function.