MONEY DEMAND AND INFLATION IN YUGOSLAVIA, 1980-1989

After discussing the relevant historical and institutional background to Yugoslav monetary and inflationary experiences, 1980-1989, Cagan's hyperinflation model is tested using an econometric technique which is unrestrictive with respect to assumptions concerning expectations formation. We also examine the hypothesis that the expected return to holding foreign assets was an important determinant of domestic money holding; test alternative hypotheses of expectations formation; and test a buffer-stock version of the Cagan model. The results support the Cagan model (especially but not exclusively when coupled with an adaptive-regressive expectations mechanism) as a description of the salient features of the data.