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Desarrollo y Sociedad
Print version ISSN 0120-3584
Abstract
VILLCA, Alfredo; TORRES, Alejandro; POSADA, Carlos Esteban and VELASQUEZ, Hermilson. DEMAND FOR MONEY IN LATIN AMERICA, 1996-2016: A COINTEGRATION APPLICATION IN PANEL DATA. Desarro. soc. [online]. 2020, n.85, pp.233-264. ISSN 0120-3584. https://doi.org/10.13043/dys.85.6.
The study of money demand enables us to understand the macroeconomic effects of monetary policy. In this paper, we estimate the money demand for 15 Latin American countries from 1996 to 2016, using panel cointegration and FMOLS estimation methods. We also estimate a model of dynamic common factors to test for the existence of common trends between countries. The results show a long run relationship between money demand, income, and interest rates. However, there is no evidence of common factors between countries, which is consistent with the heterogeneity observed in the estimated elasticities. Contrary to what we expected, in several cases, the estimated income elasticity is greater than one, which could be associated with agents’ higher risk perceptions which affect their liquidity preferences.
JEL Classification: E41, C23, C13.
Keywords : Demand for money; unit root in panel; cointegration; estimation FMOLS; Latin America.