Is There Any Impact of Credit Card on the Demand for Money? : A case of Taiwan

Abstract

In this paper, we attempt to ask whether the modified function of demand for money has relatively few arguments, when taking credit card usage into consideration. By applying Taiwan's data, the empirical results show that this modified model does not behave as well as is widely thought when comparing to traditional one. In particular, we show that by treating functions of money demand as a long-run equilibrium condition, and allowing for short-run dynamics, the modified model can be found that forecasts badly out-of-sample, while it does have robust in-sample properties.