Money Demand in Post-Crisis Russia: Dedollarization and Remonetization

This paper assesses the monetary determinants of inflation in Russia using money demand functions. We find a stable money demand relation for Russia following the 1998 crisis. Higher income boosts demand for real ruble balances and the income elasticity of money is larger than unity, reflecting remonetization in the Russian economy. Inflation affects the adjustment toward equilibrium, whereas broad money shocks lead to higher inflation. We also show that exchange rate fluctuations considerably influence Russian money demand. Our results for system stability and the predictive value of money justify using the money stock as an information variable. They also suggest that the strong influence of exchange rate on money demand is likely to continue, despite the dedollarization of the Russian economy.dollarization, money demand, Russia, vector error-correction models,