Money Demand and Economic Liberalization in a Small Open Economy--Trinidad and Tobago

Byline: Stephen Dobson (1), Carlyn Ramlogan (2) Keywords: Caribbean; cointegration; demand for money; economic liberalization Abstract: Economic liberalization creates potential instability in money demand. The introduction of liberalization in the early 1990s coincided with instability in the long-run demand for broad money (M2). OLS estimates confirm the presence of a structural break in the M2 model. Monetary policy should be based on a narrow definition of money. Moreover, the demand for money function must take explicit account of the openness of the economy. The results have important implications for policymakers in other Caribbean countries that are contemplating economic liberalization. Author Affiliation: (1) School of Management and Economics, The Queen's University of Belfast, Belfast, BT7 1NN, UK (2) Department of Agricultural and Food Economics, The Queen's University of Belfast, Belfast, BT7 1NN, UK Article History: Registration Date: 01/10/2004