Neo-classical money demand model estimation in the czech economy

A simple Almost Ideal Demand System (AIDS) model transformed by the help ofShephard's lemma from a classical optimization problem is formulated and itsbasic characteristicts are presented. Using Monthly data - money supply M2,wealth, market interest rate, PRIBOR (Prague Interbank Offer Rate), and realindustrial production - a money demand equation based on the AIDS system isestimated for the Czech transition economy. The results obtained support thehypothesis that the money demand processes in the transition economy of theCzech Republic functionate according to rather sophisticated axioms ofneo-classical theory of consumer choice.