Money Demand and Quantity Constraints : Evidence from the Soviet Interview Project

This paper examines the effects of shortages on the demand for money of Soviet citizens. It is the first to examine the demand for money in a centrally planned economy using cross-section data in which alternatives to income and interest rates are used to explain money demand. We find demand for broad money and liquid assets depends on income, illiquid wealth, participation in the underground economy, and the severity of quantity constraints as well as demographic factors. Our findings show that quantity constraints decrease demand for the national currency and increase demand for convertible currencies and barter transactions