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

scholarly journals On the nexus between Stock Market Fluctuations and the Demand for Money in Saudi Arabia

2020 ◽  
Vol 10 (1) ◽  
pp. 142
Author(s):  
Moayad Al Rasasi ◽  
Fares Rawah ◽  
Bander Alghamdi
Keyword(s):  
Saudi Arabia ◽  
Interest Rate ◽  
Money Demand ◽  
Stock Prices ◽  
Demand Function ◽  
Positive Impact ◽  
Demand For Money ◽  
Money Demand Function ◽  
Long Run ◽  
Estimated Error

This research paper estimates the augmented money demand function for Saudi Arabia while incorporating stock prices as one of the key determinants and utilizing quarterly data spanning over the period of 2010-2018. The estimated money demand function coincides with theoretical expectation regarding income and interest rate over long run. In Particular, the demand for money is statistically significant and positively related with income while it’s negatively related with interest rate. On stock prices, the findings suggest that they are statistically significant and have positive impact on money demand over the long run. Moreover, the estimated error correction model indicates that it takes money demand about two quarters to adjust to its equilibrium condition.

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 Long-Run Money Demand Function: Search for Stability in Twenty (20) Non-EMU Member Countries

2021 ◽  
Vol 9 (1) ◽  
pp. 58-87
Author(s):  
Michael Asiedu ◽  
Patrick Bimpong ◽  
Thomas Hezkeal Nan Khela ◽  
Benedict Arthur
Keyword(s):  
Money Demand ◽  
Demand Function ◽  
Money Demand Function ◽  
Long Run

scholarly journals Structural Breaks, Stability and Demand for Money in South Africa

2015 ◽  
Vol 7 (5(J)) ◽  
pp. 79-90
Author(s):  
Sambulo Malumisa
Keyword(s):  
South Africa ◽  
Money Demand ◽  
Structural Breaks ◽  
Demand Function ◽  
Money Demand Function ◽  
Correction Model ◽  
Cointegrating Vector ◽  
Long Run ◽  
Maximum Likelihood Procedure ◽  
Policy Shifts

The paper tests the null hypothesis of a stable long-run money demand in South Africa over the period 1970-2013. We employ the Gregory-Hansen (GH) method to test for the possibility of structural breaks in the money demand function. The Johansen Maximum likelihood procedure is carried out to determine the cointegration vector from which existence of one cointegrating vector is supported. Also based on the GH criterion, there is existence of one cointegrating vector. GH proposes three structural breaks for the money demand function. Results suggest that endogenous breaks occurred in 1991 and 1994. The GH cointegration equations reject M1 whilst M2 and M3 pass and we proceed to estimate the error-correction model. Complemented by the CUSUM and CUSUM of squares, the tests carried out suggest that monetary policy shifts did not introduce instability.

scholarly journals Stability of Money Demand Function in Nepal

2013 ◽  
Vol 3 (1) ◽  
pp. 1-27 ◽  
Author(s):  
Siddha Raj Bhatta
Keyword(s):  
Money Demand ◽  
Demand Function ◽  
Annual Data ◽  
Money Demand Function ◽  
Data Set ◽  
Monetary Aggregates ◽  
Demand Functions ◽  
Real Gdp ◽  
Long Run ◽  
Stability Issue

This paper examines the long-run stability issue of money demand function in Nepal using the annual data set of 1975-2009 by using the recently developed ARDL modelling to cointegration popularized by Pesaran and Shin (1999). The bounds test shows that there exists the long-run cointegrating relationship among demand for real money balances, real GDP, and interest rate in case of both narrow and broad monetary aggregates. Further, the CUSUM and CUSUMSQ test reveal that both the long-run narrow and broad money demand functions are stable. The results show that demand for money balance in Nepal is a stable and predictable function of a few variables and the central bank can rely on the monetary aggregates as intermediate targets for achieving the broad economic objectives.DOI: http://dx.doi.org/10.3126/bj.v3i1.7508 Banking Journal Vol.3(2) 2013 pp.1-27  

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