Impacts of Financial Stock Prices and Exchange Rates on the Demand for Money in Poland

Applying the extended Box-Cox model and the Newey-West method, this paper finds that the demand for real M2 is positively influenced by real GDP and the real effective exchange rate, negatively affected by the deposit rate and the world interest rate, and not correlated with the real financial stock price. Hence, real depreciation of the zloty or a lower world interest rate would raise real output. The widely used log-linear form or the linear form can be rejected at the 5% or 1% level in favor of the extended Box-Cox model, suggesting that the elasticity or the slope is not a constant but varies with the values of the dependent and independent variables.