the demand for money in a developing economy the case of kenya abstract the demand for money function occupies a central role in most theories of aggregate economic activity especially in the formulation and execution of effective monetary policy this paper examines the demand for money in the developing economy of kenya special attention is paid to the model specification its dynamic structure and to its temporal stability the empirical results show that for both conventional definitions of money the narrow and the broad the theoretical model fits the kenyan data quite well and the proposed variables are all statistically significant and with the anticipated signs the results further suggest based on a battery of tests that the estimated money demand equations for kenya are temporally stable focus is also given to the open economy nature of the money demand model and the results indicate that some measure of foreign interest rates plays a significant role in the kenyan money demand equations as potentially in any other money demand equation of an open economy monetary policy in kenya therefore must take into account the response of domestic money demand to changes in such external factors

demand for money in open economies abstract the demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments the model is estimated using quarterly postwar data for canada germany uk and us there is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates the conclusion that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper

the demand for money in an open economy the united kingdom most previous studies have estimated the demand for money without paying too much attention to developments in the foreign exchange markets in light of the fact that any development abroad and in the foreign exchange markets could have implications for domestic stabilization we make an attempt to incorporate such developments into the demand for money in the united kingdom more precisely after incorporating a measure of real effective exchange rate of the british pound into a dynamic money demand function we estimated it for the uk using quarterly data over 1973 87 period by relying upon the akaike final prediction error criteria to select the optimum number of lags it is shown that in addition to income and interest rate the real effective exchange rate exerts significant effect on the uk demand for money in the short run as well as long run

modelling money demand in open economies over the modern floating rate period the role of open economy factors in influencing domestic money demand in major industrial countries over the modern floating rate period is examined the theoretial model for the empirical analysis is derived from a general two country portfolio balance framework that determines the demand for domestic and foreign monetary and non monetary assets in each country the ecm estimates indicate that capital mobility plays an important role in the money demand function in all seven counteries considered currency substitution in contrast is not an important phenomenon

the transactions demand for money in a two currency economy abstract in this paper the model of the transactions demand for money of baumol 1952 is extended to an economy where transactions are conducted in two currencies the currency substitution hypothesis that the domestic demand for domestic money depends on the expected rate of depreciation as well as the domestic rate of interest and level of income is derived from the model in addition several new insights into the implications of currency substitution are provided

evidence on nonlinear error correction in money demand the case of taiwan this paper proposes a nonlinear error correction model based upon smooth transition regression methodology the model is specified such that the short run adjustment toward long run equilibrium is nonlinear and that the error correction is a smooth function of long run deviation empirical results obtained from estimating m2 money demand in taiwan support the hypothesis of a nonlinear error correction process and provide better interpretation of change in the demand for money

instability of the u s money demand function this paper surveys the two major episodes of instability of the u s money demand function known respectively as the mystery of missing money and the great velocity decline it also assesses the recent literature on open economy money demand models and their usefulness in explaining the puzzling behavior of money demand manifested shortly after the transition to floating exchange rates copyright 1991 by blackwell publishers ltd

modelling inflation in georgia the article explains the behaviour of inflation in georgia in the post stabilization period long run equation linking prices with money and exchange rate as well as short run dynamic equation for inflation are estimated the inflation equation is stable points to a dominant role of exchange rate in the inflation behaviour the equation explains well the behaviour of inflation after the russian crises when inflation increased sharply but was quickly brought under control when the national bank of georgia kept its monetary policy tight and exchange rate stable

inflation interest rate policy and currency substitutions in developing economies a discussion of some major issues abstract this paper deals with the management of interest rates in an open economy under rapid inflation and reviews the links between interest and exchange rate policies to prevent current substitution the rate of interest paid to lenders must equal the equivalent rate after adjusting for differential taxation and intermediation costs this would probably induce capital inflows and consequent monetary growth exchange risks are also considered in this context the paper concludes that under inflationary conditions it is difficult to use only interest rates to achieve both proper resource allocation and prevention of currency substitution some policy measures to cope with this problem are discussed

modelling money demand in open economies the case of selected asian countries while early work on money demand estimation focused primarily on the importance of domestic variables many studies in later years have suggested that foreign variables also influence the domestic demand for money in an open economy with the rapid financial market liberalization in some of the asian economies in the last couple of decades open economy factors have become very important in the determination of money demand therefore this paper aims to ascertain the degree to which foreign opportunity cost variables influence money demand in the philippines singapore and south korea cointegration analysis is performed and an error correction model estimated using quarterly time series data the empirical results support the inclusion of foreign opportunity cost variables in the money demand function

exchange rate sensitivity of the demand for money in spain 1998 exchange rate sensitivity of the demand for money in spain applied economics vol 30 no 5 pp 607 612

equilibrium credit the reference point for macroprudential supervisors equilibrium credit is an important concept because it helps identify excessive credit provision this paper proposes a two stage approach to determine equilibrium credit it uses two stages to study changes in the demand for credit due to varying levels of economic financial and institutional development of a country using a panel of high and middle income countries over the period 1980 2010 this paper provides empirical evidence that the credit to gdp ratio is inappropriate to measure equilibrium credit the reason for this is that such an approach ignores heterogeneity in the parameters that determine equilibrium credit across countries due to different stages of economic development the main drivers of this heterogeneity are financial depth access to financial services use of capital markets efficiency and funding of domestic banks central bank independence the degree of supervisory integration and experience of a financial crisis countries in europe and central asia show a slower adjustment of credit to its long run equilibrium compared with other regions of the world

the inflationary experiences of six developing countries in asia an investigation of underlying determinants this paper investigates major deteminats of the inflation rate in six asian developing countries the sample includes low and moderate high inflation cases for the investigation a monetarist model of the inflation rate adjusted to account for important external factors is used the results show that the growth of the money stock was not a primary source of inflation in all countries however various factors that influence the public s willingness to hold money are behind inflationary pressures across countries among these some are external factors stemming from changes in foreign interst rates and import prices overall the evidence suggests that the success of domestic policy in fighting inflation is highly dependent on the unique inflationary experience of each country

generalized functional forms and demand for money in an open economy the case of the united kingdom the purpose of this paper are twofold first to apply a box cox model to the uk money demand relationship within an open economy framework in order to empirically investigate the proper functional form supported by the data in this general setting secondly to test for the porper scale variable in the uk money demand function within the open economy box cox specification these improvements enhance the accuracy of our measures of monetary and fiscal policy effects and our understanding of the interdependence between different economies the empirical results derived here reject the restrictive linear and log specifications in favour of the general box cox model under both income and consumption based money demand specifications the traditional income based model however escaps unharmed from the challenge put forward by mankiw and summers 1986

how well does the mundell fleming model fit australian data since the collapse of bretton woods australian time series for the nominal interest rate real output the nominal exchange rate prices and nominal money since 1973 are characterized by a vector autoregressive process driven by five exogenous disturbances those disturbances are identified so that they can be interpreted as the five main sources of fluctuations found in the mundell fleming model of a small open economy under flexible exchange rates namely world interest rate aggregate supply is money supply and money demand shocks the dynamic responses of the estimated model to the structural shocks are analysed and shown to match most of the predictions of the mundell fleming model

consumer habituation this paper examines how consumers willingness to pay for goods is determined by past patterns of consumption the central result is atheorem of interior maximum which states that willingness to pay for a good is maximized at a moderate level of habitual consumption the theorem is derived from a simple model of adaptive behavior that involves a shifting s shaped value function the detailed analysis of the impact of consumption frequency and intensity on willingness to pay reveals an unsuspected implication of diminishing sensitivity even as it leads to a formalization of consumer habituation patterns including sensitization habituation and response recovery upon withdrawal that matches and integrates the most robust empirical regularities attendant on nonassociative learning in neurobiology and behavioral psychology an examination of the implications for demand dynamics and pricing highlights deterministic recurrent and transient patterns of consumption at higher price points

the impact of economic and monetary uncertainty on the demand for money in emerging economies by introducing uncertainty monetary volatility and economic volatility are said to make the public cautious hence increase their cash holdings or their demand for money on the other hand because of monetary and economic uncertainty if the public seek safer assets than money they may hold less cash in the absence of any paper testing for the impact of economic and monetary uncertainty on the demand for money in emerging economies this article fills the gap by considering the experiences of six central and eastern european emerging economies and four other emerging economies we found that the impact is transitory in most countries moreover money demand is found correctly specified and stable in most countries suggesting that policy based on monetary targeting could still be effective despite significant output and monetary uncertainty

stability of the money demand function in asian developing countries previous studies that estimated the money demand function in asian developing countries either employed traditional estimation techniques or recently popularized cointegration technique while the first group suffers from spurious regression problems the second group interpreted their finding of cointegration as a sign of stability of estimated parameters this study after incorporating the cusum and cusumsq tests into cointegration analysis shows that in some asian countries even though real m1 or m2 monetary aggregates are cointegrated with their determinants the estimated parameters are unstable

the financial structure and the demand for money in thailand this paper uses recently developed econometric techniques to investigate the demand for money in thailand initial estimates show the absence of any long term unique relationship among a monetary aggregate m1 or m2 an income and a price variable however the introduction of an exchange rate in the above relationship shows the presence of a cointegrating relationship this provides some support to mckinnon s hypothesis of currency substitution it also raises some concern about the closed economy focus of earlier studies on money demand in thailand addition of a foreign interest variable to the above models provide some support to the capital mobility hypothesis the long run elasticity estimates for the m1 equation raise some doubts about the desirability of using this monetary aggregate as an intermediate target by the bank of thailand the null hypothesis of a unit income elasticity and zero foreign interest elasticity are not rejected but the hypothesis of price homogeneity is rejected moreover

active and passive waste in government spending evidence from a policy experiment we propose a distinction between active and passive waste as determinants of the cost of public services active waste entails utility for the public decision maker whereas passive waste does not we analyze purchases of standardized goods by italian public bodies and exploit a policy experiment associated with a national procurement agency we find that i some public bodies pay systematically more than others for equivalent goods ii differences are correlated with governance structure iii the variation in prices is principally due to variation in passive rather than active waste and iv passive waste accounts for 83 percent of total estimated waste

political decentralization and corruption evidence from around the world abstract how does political decentralization affect the frequency and costliness of bribe extraction by corrupt officials previous empirical studies using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization have suggested conflicting conclusions in search of more precise findings we combine and explore two new data sources an original cross national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms concrete experiences with bribery in countries with a larger number of government or administrative tiers and given local revenues a larger number of local public employees reported bribery was more frequent when local or central governments received a larger share of gdp in revenue bribery was less frequent overall the results suggest the danger of uncoordinated rent seeking as government structures become more complex

the performance and competitive effects of school autonomy this paper studies a recent british reform that allowed public high schools to opt out of local authority control and become autonomous schools funded directly by the central government schools seeking autonomy had only to propose and win a majority vote among current parents almost one in three high schools voted on autonomy between 1988 and 1997 and using a version of the regression discontinuity design i find large achievement gains at schools in which the vote barely won compared to schools in which it barely lost despite other reforms that ensured that the british education system was by international standards highly competitive a comparison of schools in the geographic neighborhoods of narrow vote winners and narrow vote losers suggests that these gains did not spill over

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

corruption and the costs of redistribution micro evidence from indonesia this paper examines the degree to which the corruption in developing countries may impair the ability of governments to redistribute wealth among their citizens specifically i examine a large antipoverty program in indonesia that distributed subsidized rice to poor households i estimate the extent of corruption in the program by comparing administrative data on the amount of rice distributed with survey data on the amount actually received by households the central estimates suggest that on average at least 18 of the rice appears to have disappeared ethnically heterogeneous and sparsely populated areas are more likely to be missing rice using conservative assumptions for the marginal cost of public funds i estimate that the welfare losses from this corruption may have been large enough to offset the potential welfare gains from the redistributive intent of the program these findings suggest that corruption may impose substantial limitations on developing countries redistributive efforts and may help explain the low level of transfer programs in developing countries d 2005 elsevier b v all rights reserved

how stable is the demand for money in emerging economies one of the key elements of implementing the monetary policy is stability of the demand for money the literature includes a large number of studies that have tested the stability of the money demand in developed as well as less developed countries but not in emerging economies of eastern europe as market based data becomes available from these countries there is an urgency to test old theories for these modern market oriented economies in this article we consider the experiences of armenia bulgaria the czech republic hungary poland russia and the slovak republic using the bounds testing approach to error correction modelling and cointegration we show that money demand is stable in these countries

the effects of foreign exchange risk and return on the demand for domestic balances abstract this paper provides an empirical evidence regarding the effects of foreign exchange risk and return on the demand for domestic balances unlike earlier studies which examine only one effect and thus may have been subjected to a misspecification problem this paper includes both foreign exchange risk and return as explanatory variables in the money demand equation the results lend limited support to the hypothesis that foreign exchange risk negatively affects money demand and strongly indicate that foreign exchange return has a negative effect on the demand for domestic balances thus currency substitution seems to be relevant not just in developed economies but in developing economies subject to foreign exchange controls as well

do exchange rate changes have symmetric or asymmetric effects on the demand for money in turkey as a result of the research conducted by nobel laureate robert mundell 1963 most studies estimating the demand for money today do include the exchange rate in their specification to account for currency substitution previous studies that did this for the turkish demand for money assumed that exchange rate changes do have symmetric effects on the demand for money in turkey in this article we question this assumption by using the nonlinear ardl approach we show that indeed exchange rate changes do have short run and long run asymmetric effects on the m1 demand for money introducing nonlinearity also yields a stable money demand

corrupting learning evidence from missing federal education funds in brazil abstract this paper examines if money matters in education by looking at whether missing resources due to corruption affect student outcomes we use data from the auditing of brazil s local governments to construct objective measures of corruption involving educational block grants transferred from the central government to municipalities using variation in the incidence of corruption across municipalities and controlling for student school and municipal characteristics we find a significant negative association between corruption and the school performance of primary school students students residing in municipalities where corruption in education was detected score 0 35 standard deviations less on standardized tests and have significantly higher dropout and failure rates using a rich dataset of school infrastructure and teacher and principal questionnaires we also find that school inputs such as computer labs teaching supplies and teacher training are reduced in the presence of corruption overall our findings suggest that in environments where basic schooling resources are lacking money does matter for student achievement

exposing corrupt politicians the effects of brazil s publicly released audits on electoral outcomes author s finan frederico ferraz claudio abstract this paper examines the extent to which access to information enhances political accountability based upon the results of brazil s recent anti corruption program that randomly audits municipal expenditures of federally transferred funds it estimates the effect of the disclosure of local government corruption practices upon the re election success of incumbent mayors in municipal elections comparing municipalities which were randomly audited before the elections with those audited after the analysis shows that the disclosure of audit results had a significant impact on the re election rates of mayors found to be corrupt for a one standard deviation increase in reported corruption the audit policy reduced the incumbent s likelihood of re election by 25 percent this effect is more pronounced in municipalities where radio stations are present and higher levels of corruption are identified these findings highlight the value of information and the role of the media in reducing informational asymmetries in the political process thus enabling voters to not only hold corrupt politicians accountable but also to reward non corrupt politicians

the money demand function in a small open and quasi monetary economy the gambia the open economy money demand asserts that for its underlying theory to hold the variables ought to be co integrated co integrated variables although nonstationary in level can share a long term trend that is indeed stationary however the open money demand model has mainly been tested in developed and developing nations this article investigates the co integrated open economy money demand in the gambia where the macro economy is a quasi monetary system small relative to the world market but very open with a floating exchange rate regime in the co integrated space the gambian money demand appears to be quite responsive to domestic income a measure of interest rate and the real exchange rate fluctuations

incentives work getting teachers to come to school we use a randomized experiment and a structural model to test whether monitoring and financial incentives can reduce teacher absence and increase learning in india in treatment schools teachers attendance was monitored daily using cameras and their salaries were made a nonlinear function of attendance teacher absenteeism in the treatment group fell by 21 percentage points relative to the control group and the children s test scores increased by 0 17 standard deviations we estimate a structural dynamic labor supply model and find that teachers respond strongly to financial incentives our model is used to compute cost minimizing compensation policies jel i21 j31 j45 o15

economic policy uncertainty and demand for money in australia abstractthe demand for money has received a great deal of attention in the empirical literature this literature however has emphasized factors such as interest rate income inflation rate and e

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

money demand in the dominican republic this paper investigates a demand for money relationship for the dominican republic the financial system of the dominican republic is underdeveloped and there are no suitable domestic data on the opportunity cost of holding money economic links with the usa suggest a possible role for a foreign interest rate effect and a currency substitution effect in the demand for domestic money a long run demand for money relationship is developed from the perspective of alternative estimation methodologies and it is shown that a literature standard specification augmented by foreign monetary variables is robust the ensuing short run dynamic model is adequate stable and suggests an important role for expected inflation and a real bilateral exchange rate with the usa a number of policy implications for the dominican republic are drawn from the results

demand for money in sri lanka during the post 1977 period a cointegration and error correction analysis this paper investigates the long run demand for money and short run dynamics of the long run money demand function for sri lanka during the post 1977 period while m1 is cointegrated with real income nominal interest rate short term foreign interest rate and real effective exchange rate m2 is not this suggests that monetary authorities should emphasize the narrow definition of money for monetary control the one year fixed deposits rate is cointegrated with m1 indicating the opportunity cost of holding money although the inflation rate is not cointegrated with m1 it seems to be an important determinant of the demand for m1 in the short run results also suggest that the short term foreign interest rate and the exchange rate can have important implications for the effectiveness of monetary policy monetary authorities must consider the response of domestic money demand to these external factors when formulating future monetary policies

cointegration real exchange rate and modelling the demand for broad money in japan the literature on the demand for the japan s broad money addresses two controversial issues the form log level or log difference in which variables enter the money demand function and the question of whether financial innovation and deregulation caused shift s in the money demand relationship log level specifications of the money demand function have been shown to exhibit large shifts whereas log first differences and error correction specifications do not our paper demonstrates that the appropriate specification for the japanese money demand function is that which uses cointegration and error correction procedures

the demand for money in some major opec members regression estimates and stability results numerous studies have empirically examined the money demand function in several developed and developing countries however money demand functions in the opec economies have been largely ignored this paper estimates appropriate money demand equations for three opec economies namely saudi arabia libya and nigeria the open economy nature of the money demand model and its structural stability are stressed and tested over the quarterly period 1963 to 1979 the estimated money demand equations for the three countries fit the data quite well and exhibit sturctural stability importantly the inclusion of a variable representing foreign monetary influence into the estimated equations appears necessary for the stability result to emerge

decentralization and corruption evidence across countries the relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design the theoretical literature makes ambiguous predictions about this relationship and it has remained virtually unexamined by empiricists the authors make a first attempt at examining the issue empirically by looking at the cross country relationship between fiscal decentralization and corruption as measured by a number of different indices their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption moreover they find that the origin of a country s legal system for example civil versus common legal code performs extremely well as an instrument for decentralization the estimated relationship between decentralization when so instrumented and corruption is even stronger the evidence suggests a number of interesting areas for future work including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction and understanding the channels through which decentralization succeeds in keeping corruption in check

the power of information in public services evidence from education in uganda in this paper we argue that innovations in governance of social services are an effective way to improve outcomes such as attainment of universal primary education to test this hypothesis we explo

local capture evidence from a central government transfer program in uganda according to official statistics 20 percent of uganda s total public expenditure was spent on education in the mid 1990s most of it on primary education one of the large public programs was a capitation grant to cover schools nonwage expenditures using panel data from a unique survey of primary schools we assess the extent to which the grant actually reached the intended end user schools the survey data reveal that during 1991 1995 the schools on average received only 13 percent of the grants most schools received nothing the bulk of the school grant was captured by local officials and politicians the data also reveal considerable variation in grants received across schools suggesting that rather than being passive recipients of flows from the government schools use their bargaining power to secure greater shares of funding we find that schools in better off communities managed to claim a higher share of their entitlements as a result actual education spending in contrast to budget allocations is regressive similar surveys in other african countries confirm that uganda is not a special case

a stable demand for money despite financial crisis the case of venezuela the demand for broad money in venezuela is investigated over a period of financial crisis and substantial exchange rate fluctuations the analysis shows that there exist a long run relationship between real money real income inflation the exchange rate and an interest rate differential that remains stable over major policy changes and large shocks the long run properties emphasize that both inflation and exchange rate depreciations have negative effects on real money demand whereas a higher interest rate differential has positive effects the long run relationship is finally embedded in a dynamic equilibrium correction model with constant parameters these results have implications for a policy maker in particular they emphasize that with a high degree of currency substitution in venezuela monetary aggregates will be very sensitive to changes in the economic environment

the injustice of inequality in many countries the operation of legal political and regulatory institutions is subverted by the wealthy and the politically powerful for their own benefit this subversion takes the form of corruption intimidation and other forms of influence we present a model of such institutional subversion focusing specifically on courts and of the effects of inequality in economic and political resources on the magnitude of subversion we then use the model to analyze the consequences of institutional subversion for the law and order environment in the country as well as for capital accumulation and growth we illustrate the model with historical evidence from gilded age united states and the transition economies of the 1990s we also present some cross country evidence consistent with the basic prediction of the model

a re examination of the demand for money in small developing economies this paper re examines the money demand function in three small open economies of asia korea pakistan and singapore in addition to using the relatively new procedure of error correction modelling the roles of variables such as a the expected change in the exchange rate b foregin interest rates and c foreign exchange risks on money demand are examined in testing the importance of these variables in the money demand function special attention is paid to testing the assumptions of the classical linear regression model the sample period for each country spans from 1973 1 through 1990 1 the empirical results suggest that the error correction specification performs very well in addition to the traditional variables the results suggest that at least some measure of foreign monetary developments appear to have some significant effect on money demand behaviour in these small developing economies

the predictive performance of the time series model and the regression model of the income velocity of money this paper provides a comparative study of the relative performance of two models of the income velocity of money a time series model and a regression model using quarterly data from five eec countries our empirical results show that the regression model provides more accurate in sample prediction than the time series model out of sample however the regression model does not consistently outperform the time series model instead a linear composite perdiction combining the predictions from the time series and the regression models appears to perform the best two other results of this paper are 1 the stochastic structure of the income velocity of money can be adequately represented by a random walk with drift model after seasonality is properly accounted for 2 the regression model is temporally unstable for four of the five eec countries

currency substitution and nonlinear error correction in taiwan s demand for broad money we modify the conventional money demand function by including a real exchange rate variable to reflect the effect of currency substitution empirical evidence indicates that the variable is crucial to the long run stability of taiwan s money demand after finding the failure of a linear error correction model ecm in describing the dynamics of taiwan s money demand we apply a nonlinear ecm to examine its dynamics and support the appropriateness of the nonlinear model empirically

exchange rate sensitivity of the demand for money in developing countries there is consensus among researches that under the present floating exchange rate system although developing countries peg their exchange rate to a major currency they cannot avoid fluctuation in their effective exchange rates as long as major currencies fluctuate against one another few authors have investigated the effects of changes in effective exchange rates of developing countries on their imports exports trade balance demand for international reserves inflation etc in this paper we try to inestigate the effects of effective exchange rates of developing countries on their demand for money previous authors who have estimated a money demand function inclusive of an exchange rate variable bilateral or effective have restricted themselves to industrial countries only by using quarterly data over the 1973 85 period it is shown that in most developing countries while the short run effcts of depreciation could be in either direction its long run effects are negative indicating that deprecia

electoral accountability and corruption evidence from the audits of local governments we show that political institutions affect corruption levels we use audit reports in brazil to construct new measures of political cor ruption in local governments and test whether electoral account ability affects the corruption practices of incumbent politicians we find significantly less corruption in municipalities where mayors can get reelected mayors with reelection incentives misappropriate 27 percent fewer resources than mayors without reelection incentives these effects are more pronounced among municipalities with less access to information and where the likelihood of judicial punish ment is lower overall our findings suggest that electoral rules that enhance political accountability play a crucial role in constraining politician s corrupt behavior jel d72 k42 017

exchange rate sensitivity of demand for money and effectiveness of fiscal and monetary policies one of the arguments between proponents and opponents of floating exchange rates centres around the relative effectiveness of fiscal and monetary policy while proponents of floating rates argue that monetary policy is more effective under floating rates its opponents contend that fiscal policy is more effective under fixed rates however economic theory suggests that there is room for both policies under both types of exchange rate system depending upon degree of sterlization concentrating on the floating rates mundell 1963 has argued that the relative effectiveness of monetary and fiscal policies would also depend upon sensitivity of money demand to exchange rate more precisely he has conjectured that the demand for money is likely to depend upon the exchange rate in addition to the interest rate and the level of income this would slightly reduce the effectiveness of a given change in the quantity of money and slightly increase the effectiveness of fiscal policy on income and employment under

currency substitution and the precautionary demand for money abstract although the implications of currency substitution have received considerable attention recently the microeconomic foundations of this phenomenon seem largely to have been taken for granted the present paper considers the precautionary motive for holding cash balances as one possible motivation for the currency substitution hypothesis a three asset model is presented in which transaction costs are explicit and an agent is faced with uncertain cash requirements in two different currencies the role played by the expected rate of depreciation in the optimal portfolio allocation is found to conform with prior beliefs

policy uncertainty and the demand for money in the united kingdom limited studies that have assessed the impact of economic uncertainty on the demand for money have concentrated on using a volatility measure of money supply and output certainly other factors such as regulation taxes budget deficits national debt etc can contribute to an uncertain environment this new measure of uncertainty which is called policy uncertainty is now constructed for several countries and published we investigate the impact of this new measure on the demand for money in the uk and find that it has a negative and significant short run effect but not any log run effects