Essays on money demand, inflation and growth

Empirical studies on money demand have been characterized by implausible parameter estimates, persistent overprediction, highly auto correlated errors, and lack of co-integration. In this multi-country study for 15 developing countries, we estimate money demand functions paying special attention to some money demand characteristics that have been missing from previous work, and obtain good results in general. Specifically, we recognize the role of interest paid on various components of "money". Second, we argue that for a variety of reasons nominal interest rates don't necessarily "capture" expected inflation so we do not assume expected inflation to be included in any nominal interest rate, and estimate its effect on money demand separately. Finally, we include the interest rates paid on any relevant money substitutes such as bonds, in the equations that describe the demand for any money component, in order to estimate the cross-price semi-elasticities of demand. Furthermore, we estimate separate behavioral functions for the demand for interest-bearing money, and non-interest-bearing money respectively, since previous money demand studies do not acknowledge the different responses of different money components to changes in banking system interest rates, We later analyze if there is dynamic behavior in the demand for different money components, caused by people getting rid of or accumulating real money balances in order to reach a desired real money stock, and later estimate how disequilibria in the money market get translated into changes in the inflation rate.;In the last essay we analyze, the relationship between inflation and growth, and between disinflation and growth in developing countries. We compare growth and its components (estimated using the two-deflator method) in years of high inflation versus the same variables in years of low inflation, and in a period of rising inflation versus the period of declining inflation in the case of a disinflation episode. The results show that both low inflation rates and a period of declining inflation have positive effects on the growth rate. The component of growth that explains the largest part of this effect on growth is TFP growth, and to a smaller extent the real rate of return to capital.