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Inflationary Finance and the Demand for Money in Greece
Credit and Capital Markets – Kredit und Kapital, Vol. 20 (1987), Iss. 2 : pp. 245–257
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George S. Tavlas, Washington
References
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Abstract
Inflationary Finance and the Demand for Money in Greece
This paper estimates the effects of adaptive and rational-price expectations on money demand in Greece. In contrast to the findings of previous studies, which define adaptive price expectations as equal to the current rate of inflation, a modified-Cagan formulation of adaptive-price expectations has been found to be an important determinant of money demand. Stability tests are performed which show that regressions with both price-expectations variables are stable over the estimation period. The results of Granger and Sims causality tests indicate a feedback relation between money creation and inflation. However, the Sims results suggest that causality has run more reliably from money creation to prices. The regression results are used to determine the upper limit on the amount of seigniorage. The determination of maximizing seigniorage suggests that, had the Government not taken measures in 1982 and 1983 to curb money supply growth, Greece was headed into a situation of accelerating inflation