scholarly journals The Search for a Stable Money Demand Function for Pakistan: An Application of the Method of Cointegration

1994 ◽  
Vol 33 (4II) ◽  
pp. 969-983 ◽  
Author(s):  
Akhtar Hossain
Keyword(s):  
Monetary Policy ◽  
Money Demand ◽  
Demand Function ◽  
Policy Implications ◽  
Annual Data ◽  
Sample Period ◽  
Money Demand Function ◽  
Full Sample ◽  
Use Of Data ◽  
Better Than

Despite an impressive number of studies on money demand in Pakistan since the early 1970s, the question of stability of the money demand function did not receive much attention. This paper examines the question of whether there exists a stable money demand function in Pakistan. The novelty of the study comes from the application of the method of cointegration to Pakistani annual data over 1951-91.1 The empirical findings of this study are somewhat different from those of earlier studies on money demand in Pakistan and have monetary policy implications. However, besides some inherent shortcomings of the method of cointegration, one possible weakness of the paper is the use of data which extend over the 1950s and 1960s when Bangladesh was a part of Pakistan. It creates an unavoidable problem of data conformability. It induced me to take the risk of being somewhat complacent about the sample size as I report empirical results for a shorter sample period 1972-91. One consolation is that empirical findings for this sub-sample appear qualitatively better than those obtained for the full sample period.

scholarly journals On the (Ir)Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View

2013 ◽  
Vol 18 (2) ◽  
pp. 65-119
Author(s):  
Adnan Haider ◽  
Asad Jan ◽  
Kalim Hyder
Keyword(s):  
Monetary Policy ◽  
Money Demand ◽  
Demand Function ◽  
Policy Framework ◽  
Monetary Aggregate ◽  
Money Demand Function ◽  
Financial Innovations ◽  
The Stability ◽  
Nominal Anchor ◽  
Monetary Policy Framework

This study attempts to identify a stable money demand function for Pakistan’s economy, where the monetary aggregate is considered the nominal anchor. With evolving financial innovations and regulations, the stability of money demand has been the focus of numerous debates. Where earlier studies have provided conflicting explanations due to inadequate specifications and imprecise estimations, we find that money demand in Pakistan is stable, if specified properly. For developing countries such as Pakistan, it is important to target monetary aggregates or respond to deviations from the desirable path if monetary policy is to be effectively implemented and communicated; this should remain, if not a primary, then an auxiliary target in the monetary policy framework.

scholarly journals Demand for Money Function in Case of Philippines: An Empirical Analysis

2020 ◽  
Vol 11 (1) ◽  
pp. 220
Author(s):  
Chayanan Kerdpitak
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Granger Causality ◽  
Money Demand ◽  
Demand Function ◽  
Time Window ◽  
Asset Price ◽  
Unit Root Test ◽  
Money Demand Function ◽  
Macroeconomic Indicators

An effective formulation of monetary policy provides an empirical and coherent model of money related with demand. In order for the monetary authorities to understand the demand for the purpose of money function, the steadiness of money demand is important as it leads towards an application of efficient monetary policy. In order to examine the stability of money demand function of Philippines, following study was conducted with broad money, real asset price index, GDP deflator, real GDP, long-term interest rate and short-term interest rate. For empirical investigation, unit root test, cointegration, and Granger-Causality tests were used. However, the findings of the cointegration suggests that cointegration reveals there is presence of linear combinations, and results shows that there are four cointegrating equations present. Therefore, it is evident that there are at least 4 cointegrating relations between the variables. Hence, some of macroeconomic indicators can be used to predict the broad money due to presence of vector. However, the Granger-Causality shows that no macroeconomic variable granger cause broad money (M1). Therefore, the selected macroeconomic indictors RS, LS, CPI, GDP deflator, RGDP and AP/P cannot be used to predict the variation in the broad money (M1) in case of Philippines. This means the money demand function in Philippines is not stable, and for this purpose further investigation is suggested by increasing sample size and time window in quarterly or semi-annually.

IN SEARCH OF A STABLE NARROW MONEY-DEMAND FUNCTION FOR INDONESIA, 1970–2007

2011 ◽  
Vol 56 (01) ◽  
pp. 61-77
Author(s):  
AKHAND AKHTAR HOSSAIN
Keyword(s):  
Money Demand ◽  
Financial Crises ◽  
Demand Function ◽  
Structural Break ◽  
Annual Data ◽  
Test Results ◽  
Money Demand Function ◽  
Financial Reforms ◽  
Deposit Rate ◽  
Rolling Regression

This paper adopts the Johansen approach to cointegration to estimate a narrow money-demand function for Indonesia with annual data for the period 1970–2007. Empirical results suggest that there exists a cointegral relationship between real narrow balances, real permanent income and the deposit rate of interest. The recursive and rolling regression results suggest that the narrow money-demand function has remained largely stable irrespective of ongoing financial reforms in Indonesia since the late 1980s and/or financial crises in the late 1990s. The Quandt-Andrews breakpoint and the Hansen-Johansen stability tests results however suggest that the narrow money-demand relationship had a structural break in the early 1990s. This corresponds to a period of time when the banking and financial reforms in Indonesia took effect. The Chow breakpoint test results suggest that there was also a structural break in the money-demand relationship during the financial crises of the late 1990s.

scholarly journals Money Demand In South Africa Revisited: A Detailed Analysis Of Different Models

2013 ◽  
Vol 12 (4) ◽  
pp. 427
Author(s):  
Ferdinand Niyimbanira
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
South African ◽  
Money Demand ◽  
Demand Function ◽  
Theory And Practice ◽  
Empirical Literature ◽  
Future Research ◽  
Demand For Money ◽  
Money Demand Function

Many macroeconomists acknowledge the importance of behavior in a money demand relationship when formulating an efficient monetary policy. Many efforts have been made to estimate the money demand in function using many different specifications. This paper discusses South African empirical literature review of money demand. It revealed that different methods have been used to analyze the demand for money in South Africa, such as the linear function approach, the partial stock adjustment model, and the buffer stock disequilibrium money model. This study also discovered that few studies are done using co-integration and error correction methods and not all of these studies show that the money demand function in South Africa is stable. Implication for theory and practice, as well as area of future research, are also discussed in the study.

Determinants of Money Supply in Light of Price Changes in Iraqi Economy: (1990 – 2014)

2017 ◽  
Vol 13 (2) ◽  
pp. 83-103
Author(s):  
Salam Al-Shami ◽  
Quahtan Al-Rubeiey
Keyword(s):  
Monetary Policy ◽  
Money Demand ◽  
Demand Function ◽  
Descriptive Analysis ◽  
Research Problem ◽  
Money Demand Function ◽  
Price Changes ◽  
Continuous Basis ◽  
Conducting Research

This research addresses the main factors that determine Iraqi money demand for the period of 1990- 2014, in light of continuous price changes as an appropriate approach to find effective monetary policy. The research problem was crystalized in the following questions can we estimate the function of money demand in the Iraqi economy with accordance of economic theories?. An assumption stating that price changes are among the most important factors determining money demand function in Iraqi economy was adopted. It was found, using descriptive analysis of data available on economic variables that express money demand and its determinants (Non-petrol GDP, CPI, and interest rate) and the use of modern econometric techniques. And finally, after estimating money demand function of Iraqi economy, it was found that there is an important role of what is going on in price changes in money demand volume for the studied period, which confirms the hypothesis, due to exceptional conditions through which Iraqi economy went, and still suffering their consequences including wars, financial crisis, and fluctuations in petrol prices, which emphasizes the importance of conducting research and studies on money demand and its determining variables on a continuous basis to ensure the success of monetary policy in achieving its objectives.

A First Look at the Trilemma Vis-à-Vis Quadrilemma Monetary Policy Stance in a Pacific Island Country Context

2018 ◽  
Vol 21 (01) ◽  
pp. 1850002
Author(s):  
Jen Je Su ◽  
Lavenia Cocker ◽  
Disusu Delana ◽  
Parmendra Sharma
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Policy Implications ◽  
Capital Account ◽  
Pacific Island ◽  
Sample Period ◽  
Foreign Reserves ◽  
Full Sample ◽  
Pacific Island Country ◽  
Monetary Independence

Initiated by a central bank, this is the first study to examine and understand the trilemma as well as the quadrilemma monetary policy challenges in the case of Pacific Island countries. Taking Fiji as an example, over the 1975–2013 period, the trilemma, monetary independence and exchange rate stability might have been the more fervently pursued stance; the quadrilemma focus appears to have shifted to foreign reserves and capital account openness. When the full sample period is split into two subsamples, results show that the policy emphasis might have shifted from monetary independence, capital account openness, and foreign reserves to exchange rate stability, monetary independence, and foreign reserves. Policy implications are discussed.

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  

Determinants and Stability of Money Demand during Financial Liberalization in Sub-Saharan Africa: The Case of Uganda using an ARDL Approach

2020 ◽  
Author(s):  
Allan Kayongo ◽  
Ibrahim Mukisa ◽  
Ibrahim Mike Okumu
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Money Demand ◽  
Demand Function ◽  
Financial Liberalization ◽  
Money Demand Function ◽  
Real Money ◽  
Financial Innovations ◽  
Long Run ◽  
Demand Stability

Abstract We analyse the determinants and stability of Uganda’s real money demand function during financial liberalization. The study contributes to literature in 4 ways, i.e.: assessing the determinants and stability of Uganda’s money demand function for the financial liberalization period; this is also done while incorporating the presumably disruptive financial innovations; assessing Uganda’s money demand stability during this episode; and applying the ARDL estimation strategy on Uganda’s Monetary Policy. GDP, exchange rate, inflation, interest rate spread and foreign interest rate explain Uganda’s real money demand. The results confirm the existence of a stable long run money demand function. The error correction term is significant and negative. Fundamentally, the financial innovations have not caused structural divergence in Uganda’s long run money demand function as would have been expected. Income is significant and close to unity and therefore a good money demand indicator in both the short and long run. Most importantly, financial innovation efforts in Uganda’s monetary policy should be intensified since they haven’t had negative effects on monetary stability. Keywords: money demand, stability, financial liberalization, financial innovations JEL Classification: E41; E52; E6; O23

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