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Empirical Economics

, Volume 11, Issue 3, pp 181–196 | Cite as

Multilateral currency substitution and capital flows as sources of instability in the soe demand for money function — A case study

  • F. X. Browne
Article

Abstract

Using monthly data for Ireland we test the hypothesis that the combined effects of currency substitution and capital mobility renders the demand for money function subject to instability over time. The empirical evidence supports the view that both “the” expected exchange rate change, giving rise to currency substitution, and the latter as a component, along with “the” foreign interest rate, of the gross yield on foreign currency-denominated assets, giving rise to capital mobility, are important determinants of the domestic demand for money. Their inclusion as arguments yields a money demand function which is more stable than if they are (incorrectly) excluded.

Keywords

Exchange Rate Interest Rate Empirical Evidence Combine Effect Economic Theory 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Physica-Verlag 1986

Authors and Affiliations

  • F. X. Browne
    • 1
  1. 1.Research Dept.Central Bank of IrelandDublin 2Ireland

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