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This article aims to investigate the relationship between real money, real Gross Domestic Product (GDP) and the nominal short-term rate of interest in the two new European Union (EU) member states. In pursuit of this objective, the tests of panel cointegration and Fully Modified Ordinary Least Squares (FMOLS) are conducted by using panel data. The data used in this study consist of annual data during period 1990 to 2008. The panel cointegration results confirm a long-run relationship between real money, real GDP and the nominal short-term rate of interest. Our empirical results also show that real GDP elasticity is 0.739 and nominal short-term rate of interest elasticity is -0.013 for the panel of the two countries. © 2012 Taylor & Francis.

Original publication

DOI

10.1080/13504851.2011.597712

Type

Journal article

Journal

Applied Economics Letters

Publication Date

01/05/2012

Volume

19

Pages

705 - 710