ANOTHER VISIT TO THE CAGAN MODEL OF MONEY DEMAND - THE LATEST RUSSIANEXPERIENCE

This paper investigates empirically the Cagan style money demand funct ion for Russia during the recent hyperinflation era, 1992-1994. Using the Johansen multivariate cointegration test, results indicate that ra te of change of exchange rate (currency depreciation) is required in t he demand function for real M2 and real currency in order to obtain a stationary long-run relationship. Error correction model results show that there exists a bidirectional causality between real money balance s and determinants of real money demand, including currency depreciati on. Exchange rate sensitivity of the demand for money indicates curren cy substitution. (C) 1998 Elsevier Science B.V. All rights reserved.