This paper analyzes the demand for money in Argentina using the new open macroeconomic framework provided by the Redux Model. In a model with nontradable goods the fundamentals of money demand appear to be, not only, domestic product and interest rate, but also, net foreign assets revenues, productivity differential and terms of trade. It is necessary to introduce these new fundamentals in the standard error correction model of money demand to achieve the estimation in a macroeconomic unstable country like Argentina. We find that the transaction-elasticity and the interest-elasticity are similar to those of developed countries, and that the structural volatility of Argentina’s money demand may be explained by external shocks transmitted through foreign sector related elasticities.
JEL Classification Numbers: E41, F41, C22
