Household Demand for Money in Poland: Theory and Evidence

Household demand for narrow money in Poland during the 1980s is examined. There were shortages, but informal trade in both goods and foreign exchange was common, and holdings of foreign currency were substantial. Household money demand is first examined at the theoretical level: a representative household's domestic and foreign money holdings are analyzed in a cash-in-advance model in which domestic currency is needed to purchase goods in the official shops, but either domestic or foreign currency can be used in the black market. The resulting specification of money demand is estimated using data from 1979 to 1988.