The paper analyses the demand for nominal and real money balances (M1) in Belarus on the basis of the quarterly data for 1992-2003. Using cointegration analysis and dynamic equilibrium correction models, well specified and stable long- and short-run money demand functions are derived. On the basis of long-run real money demand functions the gap between money demand and supply (monetary overhang) is determined. Within the framework of short-run dynamic models for real money balances, the equilibrium correction mechanism and speed of adjustment of the system toward steady-state trajectory are investigated. Using the model of inflation with the equilibrium corrections mechanism taken from real money demand functions, the determinants of inflation in Belarus are examined.

Keywords: Money demand; Inflation; Monetary disequilibrium; Cointegration; Equilibrium correction model

JEL classification codes: C32; E31; E41

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