The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
How are money demand, income, and the price level affected when a significant portion of the economically active population reverts to and withdraws from subsistence economic activity? This paper tries to find a quantitative answer to the question by highlighting the specific link between the monetized and the subsistence economy that exists in the Solomon Islands: the producer price of copra, the main cash crop. The paper includes this variable explicitly in the money demand function of an aggregated macroeconomic simultaneous equation model and finds a significant impact throughout the economy.