Post stabilization estimates of money demand in Croatia: Error correction model using the bounds testing approach

Abstract

This paper estimates an error correction model of money demand for Croatia over the post-stabilization period based on the ARDL bounds testing procedure. While industrial production is statistically insignificant for both the M1 and M1A money demand specifications, interest rates, inflation, and the real effective exchange rate have a negative and statistically significant impact. The error correction money demand models appear structurally stable based on the cumulative sum and cumulative sum of square tests.