TY - JOUR

T1 - Tests of currency substitution, capital mobility and nonlinearity of Hungary's money demand function

AU - Hsieh, Wen Jen

AU - Hsing, Yu

N1 - Funding Information:
The data were collected from the International Financial Statistics, which is published by the International Monetary Fund. Real M1 or M2 are equal to nominal M1 or M2 divided by the CPI and measured in billions. Real GDP is measured in billions at the 2000 price. The deposit rate is selected to represent the domestic interest rate. The nominal effective exchange rate is a trade-weighted index with 2000 as the base year. An increase in the nominal effective exchange rate means appreciation of the forint. The 3-month euro interest rate is chosen to represent the foreign interest rate. ≈t−1 is chosen for the expected inflation rate. The sample runs from 1995.Q1 to 2005.Q4. Data for real GDP before 1995.Q1 are not available.

PY - 2009

Y1 - 2009

N2 - The demand for M2 in Hungary is positively associated with real output and the nominal effective exchange rate and negatively influenced by the deposit rate, the euro interest rate, and expected inflation rate. The coefficient of the euro interest rate for the demand for M1 is insignificant. Hence, depreciation of the forint or a higher euro interest rate would help raise Hungary's real output. The Box-Cox transformation shows that the log-linear form for M1 or M2 demand cannot be rejected at the 5% level while the linear form for M1 or M2 demand can be rejected at the 5% level. However, the log-linear form for M2 demand can be rejected at the 10% level. The CUSUM and CUSUMSQ tests show that M2 demand based on the Box-Cox model and M1 demand are relatively stable. Based on the mean absolute percent error and the Theil inequality coefficient, M2 demand based on the Box-Cox model yields better forecasting outcomes.

AB - The demand for M2 in Hungary is positively associated with real output and the nominal effective exchange rate and negatively influenced by the deposit rate, the euro interest rate, and expected inflation rate. The coefficient of the euro interest rate for the demand for M1 is insignificant. Hence, depreciation of the forint or a higher euro interest rate would help raise Hungary's real output. The Box-Cox transformation shows that the log-linear form for M1 or M2 demand cannot be rejected at the 5% level while the linear form for M1 or M2 demand can be rejected at the 5% level. However, the log-linear form for M2 demand can be rejected at the 10% level. The CUSUM and CUSUMSQ tests show that M2 demand based on the Box-Cox model and M1 demand are relatively stable. Based on the mean absolute percent error and the Theil inequality coefficient, M2 demand based on the Box-Cox model yields better forecasting outcomes.

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U2 - 10.1080/13504850701222079

DO - 10.1080/13504850701222079

M3 - Article

AN - SCOPUS:67650249181

VL - 16

SP - 959

EP - 964

JO - Applied Economics Letters

JF - Applied Economics Letters

SN - 1350-4851

IS - 9

ER -