| Sumario: | The paper presents a reply to the article "Demand and Supply Functions for Stocks of Eurodollar Deposits," by Anne-Marie Meulendyke. In the author's empirical analysis of the Eurodollar system, the author's primary objective was to supply scarce, empirical information on its workings. Meulendyke's comment puts forth an illuminating view of the Eurodollar system in the process of criticizing the author's analysis. No evidence is supplied, however, to support what is presented by Meulendyke as an appropriate view of the Eurodollar system. Meulendyke's comment raises three main objections to the author's approach of specifying and estimating a model determining stocks of Eurodollar deposits. Concern is expressed over the inclusion of real imports as an explanatory variable in the demand equation since it, as well as the dependent variable, real Eurodollar deposits, is correlated with time. Meulendyke observes that both real Eurodollar deposits and real trade flows have a strong upward trend over the estimation period and that, among possible explanatory variables, world trade is not an intuitively appealing choice, since world trade was expanding long before the Eurodollar market came into prominence.
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