Money demand and quality of institutions
Abstract
We study which variables can explain the demand for cash across countries. Our study is based on 11 years of data for 45 countries ranging from low income to high income. As expected, we find that GDP per capita is positively related to cash per capita, and interest rates are negatively related to cash per capita. Next, we explore whether various measures of country risk (or alternatively, various measures of country’s institutional quality) are related to demand for cash. Our results indicate that the country risk variables do not impact the demand for money. However, we find some evidence that Democratic accountability has negative impact on cash holdings, while Government stability has positive impact.
Description
Master's thesis in Finance