scholarly journals Financial Development and Money Demand Function: Cointegration, Causality and Variance Decomposition Analysis for Pakistan

2017 ◽  
Vol 18 (4) ◽  
pp. 811-824 ◽  
Author(s):  
Muhammad Ahad
Keyword(s):  
Exchange Rate ◽  
Financial Development ◽  
Money Demand ◽  
Industrial Production ◽  
Unit Root ◽  
Demand Function ◽  
Decomposition Analysis ◽  
Money Demand Function ◽  
Long Run ◽  
Short Run

This study has investigated money demand function incorporating financial development, industrial production, income and exchange rate for Pakistan for time span from 1972 to 2012. Bayer–Hanck combined cointegration and Johansen cointegration approaches have been used to test cointegration among variables and vector error correction model (VECM) approach has been applied to explain the direction of causality in the long run and short run. Unit root problem has been tested by augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests. The results indicate that feedback effect is found between financial development and money demand. There is a long-run relationship existing among money demand, financial development, income, industrial production and exchange rate. Financial development is the main factor to determine money demand function in both long run and short run.

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.

scholarly journals DETERMINING FACTOR FOR MALAYSIAN MONEY DEMAND FUNCTION

2020 ◽  
Vol 4 (03) ◽  
Author(s):  
Muhammad Ahmad Mazher ◽  
Jauhari Dahlan
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Demand ◽  
Significant Relationship ◽  
Demand Function ◽  
Financial Innovation ◽  
Money Demand Function ◽  
Real Money ◽  
Real Gdp ◽  
Short Run

The reason for our study was to determine the factors that influence the role of money demand in the Malaysian economy. We implicit various economic factors comprise real CPI, real interest rate, financial innovation, and real GDP and analyzed through implying ARDL Bound test for short-run and the long-run period over 1970-2018 time-series data. Based on empirical results, we revealed that over the short-run period, financial innovation having positive and significant while real GDP has a negative and significant relationship with real money demand function in Malaysia. The official real exchange rate has a positive and significant relationship with real money demand, with an increase of one unit in the real exchange rate, increasing the money demand function by 0.97 in the long term. More, negative and significant relationships revealed among real GDP and real money demand function which direct that by increase 1% change in real GDP direct to decrease in real money demand by 0.6395 in the Malaysian economy and finally real money demand predicted 13.0796 when all independent variable is zero in the Malaysian economy.

scholarly journals Broad Money Demand in Mauritius with Implications for Monetary Policy

2012 ◽  
Vol 4 (8) ◽  
pp. 436-448
Author(s):  
Indranarain Ramlall
Keyword(s):  
Money Demand ◽  
Demand Function ◽  
Adjustment Coefficient ◽  
Elasticity Coefficient ◽  
Demand For Money ◽  
Money Demand Function ◽  
Long Run ◽  
Monetary Targeting ◽  
Short Run ◽  
Local Stock

This paper employs ECM approach to investigate the long run and short-run components of the broad money demand function in Mauritius for the period spanning from 2000 to 2009. To the author’s best knowledge, no study has been undertaken over broad money in Mauritius since 1992, with an update being long overdue. Results show that M2 is positively elastic with respect to GDP, with the elasticity coefficient revolving around 2.80%, clearly showing that Mauritius is not endowed with a fully developed financial system with monetization moving faster than output. The low adjustment coefficient for VECM furthers substantiates the fact that there is indeed a lack of alternative assets to M2 and above all fully justifies the transition from monetary targeting to interest rate targeting. Evidence is found in favor of foreign asset substitution but only through the exchange rate channel. Findings further show that the local stock market does not act as a substitute to local money holdings. Overall, the study points out a rather stable demand for money function in Mauritius so that the monetary authority can contemplate using it as a complementary tool but chiefly for long-run policy assessments.

scholarly journals Comparative Analysis of the Stability of Money Demand between Côte d’Ivoire And Ghana: An Application of ARDL Model

2017 ◽  
Vol 9 (11) ◽  
pp. 163
Author(s):  
Yao Kouadio Ange-Patrick ◽  
Drama Bédi Guy Hervé
Keyword(s):  
Cote D'ivoire ◽  
Money Demand ◽  
Côte D’Ivoire ◽  
Demand Function ◽  
African Countries ◽  
Money Demand Function ◽  
Cote D’Ivoire ◽  
Côte D'ivoire ◽  
Short Run ◽  
The Stability

This paper empirically examined the broad money demand function and its stability in two West African countries namely Cote d’Ivoire and Ghana covering the period of 1980 to 2015 using the Autoregressive Distributed Lag (ARDL) Bounds testing procedure. The empirical results confirm the stability of the money demand function and support the choice of M2 as a viable instrument for policy implementation in both countries cited above. The study also demonstrates that a long-run relationship exists between money aggregate (M2) and its determinants during the study period. In fact, the real income tends to be the most significant factor explaining the demand for broad money in both countries. In addition, the overall short run estimation of our model is statistically significant for Cote d’Ivoire and insignificant for Ghana at the conventional level. This means that money demand is stable for Cote d’Ivoire in short run and unstable for Ghana in the same period. It is recommended that monetary policy authorities should continue to implement policies that will reinforce macroeconomic stability and facilitate economic growth.

scholarly journals Asymmetric Effects of Exchange Rate on Monetary Policy in Emerging Countries: A Non-Linear ARDL Approach in Uganda

2020 ◽  
Vol 7 (5) ◽  
pp. 24
Author(s):  
Allan Kayongo ◽  
Asumani Guloba ◽  
Joseph Muvawala
Keyword(s):  
Exchange Rate ◽  
Money Demand ◽  
Economic Uncertainty ◽  
Ardl Model ◽  
Real Money ◽  
Asymmetric Effects ◽  
Long Run ◽  
Non Linear ◽  
Short Run ◽  
Exchange Rate Depreciation

Many money demand studies have been carried out on Uganda, however, these studies perceive and incorporate exchange rate as a linear determinant of real money demand. Indeed, exchange rate may have asymmetric effects on real money demand; with exchange rate appreciation having different effects from exchange rate depreciation. Therefore, this is the first study to estimate exchange rate asymmetries in Uganda, for the period 2008Q3 and 2018Q4. The study uses both the linear ARDL and non-linear ARDL methodologies to accomplish its goal. This is also done by incorporating an economic uncertainty index, which is critical, especially in light of the novel global coronavirus pandemic, that has disrupted trade, movement and supply chains. The error correction terms of both models are negative and significant, with the one of the non-linear ARDL twice as much as that of the linear ARDL. Indeed, the study confirms the existence of exchange rate asymmetries on Uganda’s real money demand. In the linear ARDL model, exchange rate has a positive effect in the long run but a negative result in the short run. On one hand, the non-linear ARDL model reveals that an exchange rate depreciation of the Uganda Shillings negatively affects real money demand in the short run. On the other hand, an exchange rate appreciation positively effects real money demand. Notably, economic uncertainty has insignificant effects in both models, except for its lags in the non-linear model. The implication of these findings is that macro-economic policy management in Uganda should be cognizant of these asymmetric effects of exchange rate, for effective planning, policy and implementation.

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

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