Oil, Money, and the Mexican Economy: A Macroeconometric Analysis by Francisco Carrada-Bravo

Author:Francisco Carrada-Bravo [Carrada-Bravo, Francisco]
Language: eng
Format: epub
Tags: Political Science, General
ISBN: 9780429716775
Google: wtlGEAAAQBAJ
Goodreads: 59316417
Publisher: Routledge
Published: 2021-11-28T00:00:00+00:00

(24)

where () is the stock of real wealth, and (R mex) is the opportunity cost of holding money. For the purpose of this model, we will adopt a modified version of (24) by using real income (Y/P), a proxy for the stock of real wealth (), as an argument of the function. The opportunity cost of holding money represented by the interest rate (R mex) is eliminated as an argument of the desired demand for money since the short term interest rate in Mexico has been controlled for the government and it has not been allowed to fluctuate according to the market forces. Then the officially recorded interest rate did not usually represent the market interest rate consistent with the true cost of holding money in Mexico. For that reason we express the real stock of money demand more simply as a function of real income (Y/P)t as follows:

(25) ; 0 < k < 1 η ≃ 1

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