Money, inflation and output in Romania, 1992-2000

Nina Budina (1) , Wojciech Maliszewski (2) , Georges de Menil (3, 4) , Geomina Turlea (5, 6)

1 Banque Mondiale
2 LSE - London School of Economics and Political Science
3 Stern School of Business
4 PJSE - Paris-Jourdan Sciences Economiques
5 Romanian Centre for Economic Policy
6 Institute for World Economy

Money, inflation and output are tested for stationarity, and found to be integrated of order one. We apply the Johansen procedure for cointegration to test for the rank of the matrix of cointegration relations (one), to test for the weak exogeneity of output (accepted), inflation (rejected) and money (rejected). We interpret the unique cointegrating relationship as an extended Cagan money demand function. We then estimate error correction mechanisms, which explain the short-run movements of real money and inflation. The evidence suggests that in the period considered, including the sub-sample between the liberalization shocks, inflation was largely a monetary phenomenon.

Keywords: Demand for money; Cointegration; Inflation; Transition

Domains: Humanities and Social Sciences; Economics and Finance

Nina Budina, Wojciech Maliszewski, Georges de Menil, Geomina Turlea. Money, inflation and output in Romania, 1992-2000. Journal of International Money and Finance, 2006, 25 (2), pp.1-18. ⟨10.1016/j.jimonfin.2005.11.006⟩. ⟨halshs-00754167⟩