A DYNAMIC-MODEL OF THE DEMAND FOR CURRENCY - ARGENTINA 1977-1988

This work models money in the complex, highly inflationary environment of Argentina (1977-1988). First, cointegration techniques proposed by Engle and Granger (1987) and extended by Johansen (1988) are applied and show that real cash balances, income and inflation are cointegrated. Second, data information are used to specify the dynamics of this relationship, following the "general-to-specific" methodology developed by Hendry et al. The model selected appears to be a satisfactory representation of money demand, including being empirically constant over 1985-1988, during which there were major policy changes. However, constant, well-specified inflation or interest rate equations cannot be obtained by inverting the money demand equation, given the results found when testing for super exogeneity.