Doo Yong Yang,  Kyung Hee University: This paper examines the stability of the money demand function and its determinants for the case of Laos PDR, which has experienced a transitional economy that is a highly dollarized economy. Moreover, as other transitional economies, financial markets in Laos have shown a rudimentary stage of financial development. Therefore, money demand in a transitional economy often appear to be highly unstable, making it difficult to control inflation. This paper concludes that the money demand function is stable when exchange rate fluctuations are incorporated, and the causality analysis reveals that there is a feedback effect between money demand and the exchange rate in the long run. This implies that the exchange rate plays an important role in influencing money demand in the case of a dollarized economy such as that of Laos.

The main contribution of the paper is twofold. First, it analyzes for the...

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