Money demand and inflation in dollarized economies: The case of Russia

Money demand in dollarized economies often appears to be highly unstable, making it difficult to forecast and control inflation. In this paper, we show that a stable money demand function can be found for Russia by using effective broad money, which includes an estimate of foreign cash holdings. Moreover, we show that an excess supply of effective broad money is inflationary, while other excess money measures are not. Finally, we demonstrate that effective broad money growth has the strongest and most persistent effect on short-run inflation. Journal of Comparative Economics 33 (3) (2005) 462-483. International Monetary Fund. (c) 2005 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.