Currency demand stability in the presence of seasonality and endogenous financial innovation

2017 ◽  
Vol 9 (02) ◽  
pp. 122-139 ◽  
Author(s):  
Sunny Kumar Singh
Keyword(s):  
Demand Function ◽  
Financial Innovation ◽  
Significant Implication ◽  
Demand Equation ◽  
Deposit Rate ◽  
Content Type ◽  
Explanatory Variables ◽  
Long Run ◽  
Currency Demand ◽  
The Stability

Purpose This paper aims to examine the stability of the currency demand function for India with private consumption expenditure, tax–gross domestic product ratio and deposit rate as explanatory variables for the period 1996:1 to 2014:4. Additionally, this paper also tries to detect the presence of endogenous financial innovation in the currency demand function. Design/methodology/approach For the theoretical foundation of the study, this paper has used a modified version of money-in-the-utility function. To examine the stability of currency demand function empirically, seasonal cointegration technique developed by HEGY (1990) and EGHL (1993) was applied. Finally, to detect the presence of endogenous financial innovation in the currency demand equation, the Gurley and Shaw (1960) hypothesis was tested by presenting the currency demand equation in a state–space form. Findings The empirical findings show that there is the absence of long-run cointegrationg relationship among the variables at the zero and annual frequency; however, there is evidence of a relationship among the variables at the biannual frequency. Moreover, the time-varying coefficient of deposit rate elasticity, used to test the Gurley–Shaw hypothesis, suggests that innovations in financial markets, especially improvements in the payment technology, raise the deposit-rate elasticity, beginning from 2010 onward. Practical implications The empirical results of the paper suggest that there would be shrinkage of currency demand in future. From the monetary policy angle, the Reserve Bank of India needs to adapt adequately to a situation of shrinking demand for currency. Originality/value Apart from using seasonally unadjusted data to examine currency demand function for India, this study, for the first time, and to the best of the authors’ knowledge, tries to test the evidence of financial innovation in India by testing the Gurley–Shaw hypothesis. The findings of the study will have significant implication in the planning of the issue and distribution of currency in the fast-changing economic environment.

An Empirical Analysis of Aggregate Import Demand Function for India

2017 ◽  
Vol 17 (4) ◽  
pp. 20170049
Author(s):  
Bibhuti Ranjan Mishra ◽  
Asit Mohanty
Keyword(s):  
Foreign Exchange ◽  
Demand Function ◽  
Import Demand ◽  
Likelihood Method ◽  
Domestic Activity ◽  
Relative Prices ◽  
Distributed Lag ◽  
Long Run ◽  
Cointegration Tests ◽  
The Stability

This paper examines the behaviour of Indian aggregate imports during the period 1980–81 to 2013–14. The stability of aggregate import demand function is examined using five types of cointegration tests including the ARDL bounds test. In order to estimate the long-run elasticities, we have applied three alternative fully efficient cointegrating regressions, autoregressive distributed lag (ARDL) model and Johansen maximum likelihood method. Our results reveal cointegration relationship between import demand, relative prices of import, domestic activity and foreign exchange reserves. Results evince that, in the long-run, the response of import demand to relative import prices is negative and less than unity, whereas it’s response to domestic activity/income is positive and more than unity. The foreign exchange reserve has a positive effect on imports.

Symmetric and asymmetric adjustment of bank deposit interest rates: empirical evidence from Kenya

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moses Nzuki Nyangu ◽  
Freshia Wangari Waweru ◽  
Nyankomo Marwa
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Asymmetric Adjustment ◽  
Deposit Rate ◽  
Content Type ◽  
Long Run ◽  
Adjustment Speed ◽  
Short Run ◽  
Pass Through

PurposeThis paper examines the sluggish adjustment of deposit interest rate categories with response to policy rate changes in a developing economy.Design/methodology/approachSymmetric and asymmetric error correction models (ECMs) are employed to test the pass-through effect and adjustment speed of deposit rates when above or below their equilibrium levels.FindingsThe findings reveal an incomplete pass-through effect in both the short run and long run while mixed results of symmetric and asymmetric adjustment speed across the different deposit rate categories are observed. Collusive pricing arrangement behavior is supported by deposit rate categories that adjust more rigidly upwards than downwards, while negative customer reaction behavior is supported by deposit rate categories that adjust more rigidly downwards than upwards.Practical implicationsEven though the findings indicate an aspect of increased responsiveness over the period, the sluggish adjustment of deposit rates imply that monetary policy is still ineffective and not uniform across the different deposit rate categories.Originality/valueTo the best of the authors' knowledge, this is the first study to empirically examine both symmetric and asymmetric adjustment behavior of deposit interest rate categories in Kenya. The findings are key to policy makers as they provide insights on how long it takes to adjust different deposit rate categories to monetary policy decisions. In addition, the behavior of deposit rates partly explains why interest rates capping was imposed in Kenya in 2016.

scholarly journals The Impact of Financial Innovation on the Money Demand Function: An Empirical Verification in India

2020 ◽  
Vol 14 (1) ◽  
pp. 28-61 ◽  
Author(s):  
Masudul Hasan Adil ◽  
Neeraj Hatekar ◽  
Pravakar Sahoo
Keyword(s):  
Money Demand ◽  
Demand Function ◽  
Financial Innovation ◽  
Jel Classification ◽  
Parameter Estimates ◽  
Correlated Errors ◽  
Bounds Testing ◽  
Money Demand Function ◽  
Long Run ◽  
The Impact

Traditional money demand functions are often criticized for persistent over-prediction, implausible parameter estimates, highly serially correlated errors and unstable money demand. This study argues that some of these problems may have emerged for the lack of factoring financial innovation into the money demand function. This study estimates money demand for India during the post-reform period, from 1996:Q2 to 2016:Q3. The money demand function is estimated with the linear ARDL approach to cointegration developed by Pesaran, Shin, & Smith (2001), Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16(3), 289–326, after employing various proxies for financial innovation. In conclusion, the study finds that there is a stable long-run relationship among variables, such as real money balances, and the scale and opportunity cost variables. In a nutshell, the study assesses the relative importance of financial innovation variables in the money demand equation, and finds that financial innovation plays a very significant role in the money demand specification and its stability. JEL Classification: E41, E44, E42, E52, O16, O53

Bank competition, financial innovations and economic growth in Ghana

2014 ◽  
Vol 5 (1) ◽  
pp. 30-51 ◽  
Author(s):  
Anthony Adu-Asare Idun ◽  
Anthony Q.Q. Aboagye
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Financial Innovation ◽  
Bank Competition ◽  
Content Type ◽  
Financial Innovations ◽  
Long Run ◽  
Short Run ◽  
The Relationship ◽  
Finance Growth Nexus

Purpose – This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The purpose of this paper is to find the causality among bank competition, financial innovations and economic growth in Ghana. Design/methodology/approach – The relationship between bank competition, financial innovations and economic growth was established through the framework of the endogenous growth model. In addition, the paper employed the bound testing ARDL cointegration procedures to enable us to establish both short-run and long-run relationship between bank competition, financial innovations and economic growth. Granger causality test were also estimated to determine the direction of causality. Findings – The results showed that, in the long run, bank competition is positively related to economic growth while financial innovation is negatively related to economic growth. In the short run, bank competition is negatively related to economic growth. By the same token, financial innovation is positively related to economic growth in the short run. In terms of causality, the results showed that there is unidirectional Granger causality from bank competition to economic growth. However, there is bidirectional Granger causality between financial innovation and economic growth. Practical implications – The study therefore, recommends for more regulations toward a more competitive banking system with more innovative products tailored toward mobilization of savings and investment to growth induced sectors of the economy. Originality/value – This paper provides a time series perspective to the finance-growth nexus and highlights the potential contribution of effective banking development to the economic welfare of the Ghanaian citizens.

scholarly journals Solving the Moro problem: legalizing the Bangsamoro peace process

2016 ◽  
Vol 8 (3) ◽  
pp. 212-223 ◽  
Author(s):  
Gene Carolan
Keyword(s):  
Conflict Resolution ◽  
Peace Process ◽  
Structural Features ◽  
The Philippines ◽  
Peace Agreement ◽  
Conflict Zones ◽  
Content Type ◽  
Long Run ◽  
The Government ◽  
The Stability

Purpose – The purpose of this paper is to highlight the structural features that are proving central to the stability of the 2014 Comprehensive Agreement on the Bangsamoro between the Government of the Philippines and the Moro Islamic Liberation Front, and those features that were detrimental to its predecessors. Design/methodology/approach – This paper adopts a legalization framework derived from the model presented by Abbott et al. The simplicity of Abbott et al.’s theory allows for variation in the agreements’ text to be easily measured and compared. The inherent advantages of this model offset the difficulties in characterizing peace agreements under traditional legal methodologies, and reiterate the importance of legalized agreements in a conflict resolution context. Findings – This paper finds that a more highly legalized approach to peace-making has resulted in greater agreement stability in the Philippines. More precise in detail and inclusive in scope, the legal nature of the 2014 Comprehensive Agreement has made it more responsive to the root causes of the conflict, and resilient to incidents that threatened to derail the peace process. Practical implications – This case study bears valuable lessons for conflict zones the world over, particularly the troubled negotiations on Syria, and the crisis in Ukraine. The study: lends tentative support to Gopalan’s claim that agreements that exemplify hard legalization are much more sustainable in the long run; stresses the advantages of inclusivity in agreement sustainability and stability; reiterates the importance of addressing the key issues relevant to the conflict if the process is to be sustainable, and; notes the limitations of the legalization framework, but presents the Philippine example as a blueprint for addressing various aspects of the Syrian and Ukrainian conflicts. Originality/value – This is the first peer-reviewed analysis to explore the 2014 Comprehensive Agreement as a highly legalized conflict resolution instrument, and an adaptable template for peace agreement design generally.

Trade-growth nexus and the rolling window analysis in United Arab Emirates

2018 ◽  
Vol 12 (4) ◽  
pp. 469-488 ◽  
Author(s):  
Syed Ali Raza ◽  
Rashid Sbia ◽  
Muhammad Shahbaz ◽  
Sahel Al Rousan
Keyword(s):  
Economic Growth ◽  
Series Data ◽  
Unique Contribution ◽  
Content Type ◽  
Window Analysis ◽  
Long Run ◽  
Rolling Window ◽  
The Stability ◽  
Window Approach ◽  
The Relationship

Purpose This paper aims to examine the relationship between trade and economic growth using data of UAE economy for the period of 1974-2011. Design/methodology/approach The bounds testing is applied for testing the cointegration relationship between the variables. The rolling window approach has been used to analyze the stability of long run coefficients. Findings The empirical analysis shows the presence of cointegration between trade and economic growth. Furthermore, exports have positive, but imports have negative effect on economic growth. The rolling window approach confirms the stability of long-run estimates. Practical implications This paper provides new insights for policymakers to use trade as economic tool for sustainable economic development. Originality/value This paper makes a unique contribution to the literature with reference to UAE, being a pioneering attempt to investigate the relationship between trade and economic growth by using long time series data and applying more rigorous techniques like time varying rolling window analysis.

scholarly journals Interest Rate Deregulation and Performance of Deposit Money Banks: Time Series Evidence from Nigeria

2021 ◽  
Vol 04 (08) ◽  
Author(s):  
Awa Michael Uduma ◽  
Keyword(s):  
Interest Rate ◽  
Banking System ◽  
Order Zero ◽  
Deposit Rate ◽  
Explanatory Variables ◽  
Long Run ◽  
Integration Test ◽  
Lending Rate ◽  
Interest Rate Deregulation ◽  
And Performance

This work investigated the relationship between interest rate deregulation and performance of Nigerian deposit money banks for the period 1996-2018. Interest rate deregulation was disaggregated into prime lending rate, maximum lending rate, 3-months deposit rate and over 12-months deposit rate while return on assets (ROA) was used as a proxy for deposit money banks’ performance. Data on the above variables were sourced from the Central Bank of Nigeria Statistical Bulletin (2018 edition) and the World Bank data base. The data were tested for stationarity using the Dickey-Fuller (D-F) test, for long-run relationship using Bound’s co-integration test, and for reliability of ARDL results using serial correlation, heteroscedasticity and normality tests. The results of the tests revealed that all the variables were integrated of order zero or one, and that a long-run relationship exists between the variables. Consequently, ARDL model for parameter estimation process revealed that only prime lending rate was positively related to ROA of banks while none of the explanatory variables was statistically significant. The researcher then submitted that there is no significant relationship between interest rate deregulation and the performance of Nigerian deposit money banks for the period considered. Hence, deposit money banks should strive to mobilize adequate savings from surplus spenders by offering them deposit rates that are capable of inducing savers to increase their savings and boost the availability of loanable funds. Also, there is urgent need to restructure the Nigerian financial system whereby policies by the monetary authorities will achieve pre-determined goals. In essence, to make interest rate policies meaningful, there is need to curtail financial transactions that escape the banking system.

scholarly journals An Empirical Estimation of the Underground Economy in Ghana

2014 ◽  
Vol 2014 ◽  
pp. 1-14 ◽  
Author(s):  
Edward Asiedu ◽  
Thanasis Stengos
Keyword(s):  
Lower Bound ◽  
Underground Economy ◽  
Parameter Estimates ◽  
Empirical Estimation ◽  
Demand Equation ◽  
Long Run ◽  
Currency Demand ◽  
Currency Demand Approach ◽  
Average Size

The main aim of this paper is to estimate the size of the underground economy in Ghana during the period 1983–2003. There is no agreement on the appropriate estimation approach to adopt to measure the size of the underground activities. To this end, we employ the well-applied currency demand approach in our measurement. Parameter estimates from the estimated currency demand equation are used in quantifying the ratio of “underground” to “measured” output/income for the Ghanaian economy. The estimated long-run average size of the underground economy to GDP for Ghana over the period is 40%. The underground economy is found to vary from a high of 54% in 1985 to a low of 25% in 1999. Estimates may represent lower bound estimates.

Estimating the underground economy, illegal money and tax evasion in Qatar

2019 ◽  
Vol 26 (4) ◽  
pp. 1048-1064 ◽  
Author(s):  
Awadh Ahmed Mohammed Gamal ◽  
Jauhari Dahalan ◽  
K. Kuperan Viswanathan
Keyword(s):  
Tax Evasion ◽  
Banking Sector ◽  
Demand Function ◽  
Unit Root Test ◽  
Underground Economy ◽  
Average Level ◽  
Economic Activities ◽  
Content Type ◽  
Currency Demand ◽  
The Government

Purpose Up to now a country-specific study on Qatar with respect to underground economy, illegal money and tax evasion has not been undertaken. This paper aims to contribute by separately estimating the magnitude of the underground economy in Qatar from 1980 to 2010 using adjusted currency demand function. Design/methodology/approach The study uses the Zivot–Andrews unit root test for the stationarity analysis and applies the Gregory and Hansen long run cointegrating technique for estimating the underground economy based on the latest form of the currency demand function model. While the general to specific technique is used to estimate the short run error correction model. Findings The results show that the average size of the underground economy in Qatar is about 17.03 per cent of the official gross domestic products (GDPs). The average level of tax evasion as a per cent of the total non-oil tax revenues is estimated at around 16.50 per cent and is about 2.12 per cent of the official GDP. The average level of illegal money to the total money from banking sector is estimated at 26.70 per cent. Originality/value This study is the first to separately estimate the extent of the underground economy, illegal currency and tax evasion in Qatar. It overcomes the methodological errors and spurious estimation problems encountered in the previous studies that included Qatar with other countries based on cross-country data without taking into consideration the economic differences between countries. The authors believe that the findings may help the government of Qatar to re-formulate its economic policies, thus, enabling it to curb the growing underground economic activities.

scholarly journals Structural Adjustment And The Stability Of The Nigerian Money Demand Function

2011 ◽  
Vol 3 (8) ◽  
Author(s):  
Olugbenga A. Onafowora ◽  
Oluwole Owoye
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Demand ◽  
Structural Adjustment ◽  
Demand Function ◽  
Money Demand Function ◽  
The Real ◽  
Long Run ◽  
The Stability ◽  
Domestic Interest Rate

This paper uses cointegration vector error correction analysis to test the stability of the demand for real broad money (M2) in Nigeria over the quarterly period 1986:1 to 2001:4 in order to ascertain whether recent macroeconomic developments such as the implementation of the structural adjustment programme (SAP) in 1986; the liberalization of the exchange rate, domestic interest rate, and capital accounts; financial deepening and innovations; changes in monetary policy regimes; and increased integration of the economy with the rest of the world may have caused the real broad money demand function to become structurally unstable. Our empirical results indicate that there exists a long-run relationship between the real broad money aggregate, real income, inflation rate, domestic interest rate, foreign interest rate, and expected exchange rate. Furthermore, both the CUSUM and CUSUMSQ tests confirm the stability of the short- and long run parameters of the real money demand function. The stability of the parameters of the money demand equation provides the justification for the monetary authority to target the broad money supply in its bid to manage inflation and stimulate economic activity in Nigeria.

Sign in / Sign up

Export Citation Format

Share Document