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The Demand for Money in A Small Island Economy: The Case of Barbados

MICHAEL HOWARD
Indian Economic Review
New Series, Vol. 37, No. 2 (July-December 2002), pp. 199-208
Stable URL: http://www.jstor.org/stable/29794272
Page Count: 10
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Demand for Money in A Small Island Economy: The Case of Barbados
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Abstract

This study estimates the demand for real money balances in Barbados for the period 1973 - 1998. The paper employs a cointegration and error correction modelling (ECM) approach. The results show that the demand for real money is a function of real income, inflation and the error correction mechanism. This means that real money balance holders restore these balances to the long-run relationship whenever they are in a short-run disequilibrium position. Inflation is exogenous in the money demand function. The policy implication of this finding is that the monetary authorities cannot control the inflation rate in a demand-centered money market.

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