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Geldnachfrage in einer offenen Volkswirtschaft: Bundesrepublik Deutschland 1970-1979
Credit and Capital Markets – Kredit und Kapital, Vol. 15 (1982), Iss. 4 : pp. 517–537
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Loef, Hans-E.
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Abstract
The Demand for Money in an Open Economy: Germany 1970 - 1979
In an open economy with no restrictions, or only minor ones, on international capital flows and currency holdings it seems plausible to include in the list of the opportunity costs for holding money besides the domestic interest rates and the expected inflation rate foreign opportunity costs as well. Foreign bonds and foreign currencies can be considered as the most appropriate candidates to represent foreign alternatives to domestic money holdings. Currency substitution permits residents to keep foreign currencies while individuals abroad can hold domestic money. Expected exchange rates and foreign interest rates therefore influence the demand for domestic real money in an open economy. Empirical investigations for Germany 1970 to 1979 with quarterly data provide strong evidence for these theoretical propositions. Of special concern for the paper presented is - besides the influence of foreign interest rates - the negative impact of the expected inflation rate and the positive (negative) influence of an expected appreciation (depreciation) of the home currency relative to foreign currencies on the demand for domestic real money.