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Volume :8 Issue : 1 2001      Add To Cart                                                                    Download

The Behavior and Determinants of the Currency to Demand Deposits Ratio: Some Empirical Evidence from Kuwait

Auther : Naief H. Al-Mutairi

This study examines the behavior of the currency to demand deposits ratio in an oil-exporting country, Kuwait over the period 1972-96. Toward this end, a partial adjustment model is employed. However, before estimating level regressions, the study carried out unit root and co-integration tests to ensure all data are stationary and are of the same order of integration, to avoid spurious regression results. The study has arrived to two important conclusions. The first is that inflation rate, interest rate and, by less degree, the real GDP are important determinants for the currency ratio function in Kuwait. This finding has important implications for the conduct of monetary policy. The second is that some periods of instability, like the period of the Iraqi occupation of Kuwait, don’t have a significant influence on the ratio, and hence, inducing no upward shift in the currency ratio function.

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