Empirical evidence on the demand and supply of money; the case of Cyprus
Philippou, Andreas A.
Blanco, Herminio A.
Master of Arts
This thesis explores the nature of the demand and supply of money through the use of econometric tools. The interest rates are fixed in Cyprus and, therefore, an alternative way of measuring the cost of holding money has to be used. The tests show that the expected rate of inflation is the best substitute. Money demand is found to be a function of income, money stock in the previous period and the expected rate of inflation. Testing of the supply equation shows that the money multiplier is stable over time. Both equations are stable and have good forecasting ability. Finally, the joint estimation of supply and demand yields more efficient estimators than those found by estimating the equations individually.