scholarly journals A Semi-Nonparametric Approach to the Demand for Money in Pakistan

2011 ◽  
Vol 16 (2) ◽  
pp. 87-110 ◽  
Author(s):  
Haroon Sarwar ◽  
Zakir Hussain ◽  
Masood Sarwar
Keyword(s):  
Money Demand ◽  
System Analysis ◽  
Demand For Money ◽  
Nonparametric Approach ◽  
Monetary Authorities ◽  
Functional Forms ◽  
Data Points ◽  
Substitution Elasticities ◽  
Monetary Assets ◽  
Perfect Substitution

The degree of substitutability of different monetary assets serves as a valuable source of information for Pakistan’s monetary authorities in the context of money demand analysis. Barnett’s (1980) concept of the micro-foundations of money demand has paved the way for a more comprehensive demand system analysis. Locally flexible functional forms are unable to estimate substitution elasticities at all data points, and thus, we use the asymptotically ideal model, which is a semi-nonparametric globally flexible functional form. Our data on income, price, and substitution elasticities show that there is less-than-perfect substitution among monetary assets. The results of Allan and Morishima elasticities show that the former are inherently biased toward showing monetary assets as complements, making Morishima a better choice. The study recommends that it is high time Pakistan’s monetary authorities abandoned the simple-sum aggregation method, which assumes perfect substitution among monetary assets.

The Demand For Money in Pakistan: Reply (Notes and Comments)

1975 ◽  
Vol 14 (3) ◽  
pp. 370-375
Author(s):  
M. A. Akhtar
Keyword(s):  
Interest Rates ◽  
Money Demand ◽  
Strong Support ◽  
Physical Capital ◽  
Careful Examination ◽  
Demand For Money ◽  
Weak Support ◽  
Complementarity Hypothesis ◽  
The Difference ◽  
The One

I am grateful to Abe, Fry, Min, Vongvipanond, and Yu (hereafter re¬ferred to as AFMVY) [1] for obliging me to reconsider my article [2] on the demand for money in Pakistan. Upon careful examination, I find that the AFMVY results are, in parts, misleading and that, on the whole, they add very little to those provided in my study. Nevertheless, the present exercise as well as the one by AFMVY is useful in that it furnishes us with an opportunity to view some of the fundamental problems involved in an empi¬rical analysis of the demand for money function in Pakistan. Based on their elaborate critique, AFMVY reformulate the two hypo¬theses—the substitution hypothesis and the complementarity hypothesis— underlying my study and provide us with some alternative estimates of the demand for money in Pakistan. Briefly their results, like those in my study, indicate that income and interest rates are important in deter¬mining the demand for money. However, unlike my results, they also suggest that the price variable is a highly significant determinant of the money demand function. Furthermore, while I found only a weak support for the complementarity between money demand and physical capital, the results obtained by AFMVY appear to yield a strong support for that rela¬tionship.1 The difference in results is only a natural consequence of alter¬native specifications of the theory and, therefore, I propose to devote most of this reply to the criticisms raised by AFMVY and the resulting reformulation of the two mypotheses.

scholarly journals PERILAKU PERMINTAAN UANG DALAM SISTEM MONETER GANDA DI INDONESIA

2008 ◽  
Vol 11 (1) ◽  
Author(s):  
Ascarya Ascarya ◽  
Heni Hasanah ◽  
Noer Azam Achsani
Keyword(s):  
Money Demand ◽  
Conventional System ◽  
Demand For Money ◽  
Monetary System ◽  
Time Deposit ◽  
Demand Deposit ◽  
Demand Deposits ◽  
Demand Variation ◽  
The Interest Rate ◽  
Saving Deposit

The cotemporary dual monetary system is characterized by an interest system in conventional system and the profit-and-loss sharing (PLS) system in Islamic system, where each of them has a different behavior in influencing the money demand and the monetary stability. This study analyses the components of money demand under both the conventional and Islamic financial system in Indonesia, using a Vector Auto Regression (VAR) and Vector Error Correction Model (VECM) methods.The results show that in Islamic system, PLS return negatively correlated with all Islamic demand for money components (currency, Wadiah demand deposit, Mudharabah saving deposit, and Mudharabah time deposit). While in conventional system, interest is negatively correlated with the demand for currency, the demand deposit, and the saving deposit, but positively correlated with the demand for time deposit. The Islamic demand for money stabilizes quiclier to respons the shock from other variables compare to conventional system. Moreover, the interest rate contributes 20%-29% in the conventional demand for money variation, while in PLS system the return almost has no role on Islamic money demand variation. Our research also shows that the savings deposits in Indonesia have the characteristics of the demand deposits, hence preferably included in M1 instead of in M2.These findings suggest the monetary authority to gradually shift their mindset from the conventional monetary operation to the dual monetary operation and explore further the possibility of using PLS return as the “policy rate” benchmark to achieve the principal objectives in maximizing distributive social welfare and justice, as well as minimizing inefficiency.JEL Classification: C32, E31, E41, E52Keywords: Permintaan Uang Konvensional, Permintaan Uang Islam, Sistem Keuangan/Perbankan Ganda, VAR/VECM

scholarly journals Optimal Combination of Currency Assets and Algorithm Simulation under Exchange Rate Risk

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-10
Author(s):  
Jun Wei
Keyword(s):  
Money Demand ◽  
Dynamic Equilibrium ◽  
Money Market ◽  
Demand Model ◽  
Demand For Money ◽  
Virtual Economy ◽  
The Interest Rate ◽  
Economic Assets ◽  
Social Wealth ◽  
The Impact

The excess money supply did not lead to a rapid rise in the price index, which in turn triggered inflation. In this case, the redetermination of the demand for money is particularly important. At the same time, with the continuous expansion of the capital market and the rapid development of the virtual economy, the virtual economy is gradually deviating from the real economy. When selecting assets, microentities often incorporate virtual economic assets into investment considerations. Therefore, it is necessary to establish a money demand model that considers the impact of virtual economic assets. This paper uses the asset selection of microentities as the microfoundation to establish a money demand model to explain its economic significance. And based on the money demand model established, a dynamic equilibrium model of the money market was established, and the stability of the dynamic equilibrium point of the money market was verified through mathematical deduction. Based on the dynamic equilibrium model of the money market, the impact of money supply was analyzed. In order to verify the correctness of the aforementioned theory, this paper conducts an empirical analysis. Through cointegration analysis and the vector error correction model (VECM model), the correctness and applicability of the established money demand model are verified, and money demand, total social wealth, spreads between expected stock returns and interest rates, and real estate expectations are found. There is a long-term equilibrium relationship between the rate of return and the interest rate. The total amount of social wealth, the expected rate of return on stocks, and the interest rate spread will have an impact on the demand for money in the short term.

scholarly journals Money Demand Function for Nepal: An Empirical View from Expenditure Component

2019 ◽  
pp. 12-25
Author(s):  
Pujan Adhikari
Keyword(s):  
Interest Rate ◽  
Money Demand ◽  
Capital Formation ◽  
Consumption Expenditure ◽  
Demand For Money ◽  
Final Consumption ◽  
On Demand ◽  
Long Run ◽  
Fixed Capital Formation ◽  
Short Run

This paper examines the long run and short-run dynamics relationship between broad money, consumption expenditure, capital stock and interest rate in Nepal over the period of 1975-2017. This paper employs ARDL bound testing approach for co-integration between the broad money demand and its determinants. Result reveals the evidence of cointegration among the variables. The empirical results show that the demand for money is affected by the interest rate and final consumption expenditure both in the long run and short-run. However, the gross fixed capital formation has no impact on demand for money in the long-run and short-run as well. On contrast, interest rate is positively associated with Broad money demand, which is not consistent with theoretically. Positive association of money demand with interest rate shows that demand for money function is instability in Nepal. Thus, this study suggests that policy maker to correct price fluctuation through the control of various expenditure components, particularly, real final consumption expenditure might be an important strategy in the long run. However, the gross fixed capital formation has no impact on demand for money in the long-run.

THE DEMAND FOR LIQUID ASSETS: EVIDENCE FROM THE MINFLEX LAURENT DEMAND SYSTEM WITH CONDITIONALLY HETEROSKEDASTIC ERRORS

2018 ◽  
Vol 23 (07) ◽  
pp. 2941-2958
Author(s):  
Dongfeng Chang ◽  
Apostolos Serletis
Keyword(s):  
United States ◽  
Covariance Matrix ◽  
Financial Econometrics ◽  
The United States ◽  
Demand System ◽  
Demand Systems ◽  
Time Varying ◽  
Conditional Covariance ◽  
Demand For Money ◽  
Monetary Assets

We investigate the demand for money and the degree of substitutability among monetary assets in the United States using the generalized Leontief and the Minflex Laurent (ML) models as suggested by Serletis and Shahmoradi (2007). In doing so, we merge the demand systems literature with the recent financial econometrics literature, relaxing the homoskedasticity assumption and instead assuming that the covariance matrix of the errors of flexible demand systems is time-varying. We also pay explicit attention to theoretical regularity, treating the curvature property as a maintained hypothesis. Our findings indicate that only the curvature constrained ML model with a Baba, Engle, Kraft, and Kroner (BEKK) specification for the conditional covariance matrix is able to generate inference consistent with theoretical regularity.

scholarly journals Exchange Rate and Demand for Money in Nigeria

2015 ◽  
Vol 7 (2) ◽  
pp. 21
Author(s):  
BigBen Chukwuma Ogbonna
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Money Demand ◽  
Black Market ◽  
Easy Access ◽  
Market Exchange ◽  
Demand Model ◽  
Demand For Money ◽  
Official Exchange Rate

<p>This study is designed to examine empirically the impact of exchange rate on the stability of demand for money in Nigeria where official and black market exchange rates operate side by side due to exchange controls. Variants of money demand model are estimated using monthly data for the period of 2005-2013. Cointegration and system equation techniques combined with CUSUM and CUSUMSQ tests are employed in the data analysis. Results indicate that in all the variants of the money demand model, coefficients of exchange rates variable (official or black market exchange rates) manifest significant <em>t</em> statistics, meaning that the null hypothesis of restricting the coefficients of exchange rates in money demand model in Nigeria is rejected for each variant. This suggests that coefficient of exchange rates variable (OMEXR or BMEXR) belongs to the cointegrating space in all the instances. Judging from the freakiness of the coefficients of the variants of the money demand function and the results of the tests for stability of the models combined, the most appropriate  demand for money function for Nigeria appear to be the one that includes M1, the interest rate, inflation rate, and official exchange rate. This implies that in Nigeria, a greater percentage of the foreign exchange demand may be public sector driven and substantial percentage of the private sector foreign exchange needs is sourced from the official exchange rate market due to the substantial disparity between the two rates. This may mean consumers’ easy access to official exchange rate and transparency in the operation of official exchange rate market in Nigeria.</p>

ECONOMIC UNCERTAINTY, MONETARY UNCERTAINTY, AND THE DEMAND FOR MONEY IN AFRICA: AN ASYMMETRY ANALYSIS

2020 ◽  
Vol 20 (02) ◽  
pp. 2050007
Author(s):  
MOHSEN BAHMANI-OSKOOEE ◽  
AUGUSTINE C. ARIZE
Keyword(s):  
Money Demand ◽  
Region Of Interest ◽  
Output Volatility ◽  
Economic Uncertainty ◽  
Demand For Money ◽  
Asymmetric Effects ◽  
Nonlinear Ardl ◽  
Uncertainty Measures ◽  
Long Run ◽  
Short Run

Economic uncertainty and monetary uncertainty are two uncertainty measures that are said to affect the demand for money in any country and our region of interest, Africa, is no exception. In this paper, we take an additional step and argue that changes in any uncertainty measure could have asymmetric effects on the money demand. After applying the linear and nonlinear ARDL approaches to each of the 13 African nations, while we find the short-run effects of both uncertainty measures to be asymmetric, long-run asymmetric effects were discovered in limited number of countries. We also discovered that monetary volatility has more long-run effects than output volatility which implies that a steady and not so erratic money growth will have its predictive impact on the African economies.

A Robust Information Clustering Algorithm

2005 ◽  
Vol 17 (12) ◽  
pp. 2672-2698 ◽  
Author(s):  
Qing Song
Keyword(s):  
Clustering Algorithm ◽  
Risk Minimization ◽  
Minimax Optimization ◽  
Cluster Number ◽  
Minimization Principle ◽  
Nonparametric Approach ◽  
Empirical Risk ◽  
Structural Risk Minimization Principle ◽  
Real Risk ◽  
Data Points

We focus on the scenario of robust information clustering (RIC) based on the minimax optimization of mutual information (MI). The minimization of MI leads to the standard mass-constrained deterministic annealing clustering, which is an empirical risk-minimization algorithm. The maximization of MI works out an upper bound of the empirical risk via the identification of outliers (noisy data points). Furthermore, we estimate the real risk VC-bound and determine an optimal cluster number of the RIC based on the structural risk-minimization principle. One of the main advantages of the minimax optimization of MI is that it is a nonparametric approach, which identifies the outliers through the robust density estimate and forms a simple data clustering algorithm based on the square error of the Euclidean distance.

FLEXIBLE FUNCTIONAL FORMS, CURVATURE CONDITIONS, AND THE DEMAND FOR ASSETS

2007 ◽  
Vol 11 (4) ◽  
pp. 455-486 ◽  
Author(s):  
APOSTOLOS SERLETIS ◽  
ASGHAR SHAHMORADI
Keyword(s):  
The United States ◽  
Demand System ◽  
Empirical Literature ◽  
Regularity Conditions ◽  
Indirect Utility ◽  
Flexible Functional Forms ◽  
Demand For Money ◽  
Monetary Aggregation ◽  
Policy Perspective ◽  
Functional Forms

This paper focuses on the demand for money in the United States in the context of five popular locally flexible functional forms—the generalized Leontief, the basic translog, the almost ideal demand system, the Minflex Laurent, and the normalized quadratic reciprocal indirect utility function. We pay explicit attention to the theoretical regularity conditions of positivity, monotonicity, and curvature and argue that much of the older empirical literature ignores economic regularity. We treat the curvature property as a maintained hypothesis and provide a comparison in terms of violations of the regularity conditions and in terms of output in the form of a full set of elasticities. We also provide a policy perspective, in that a strong case can be made for abandoning the simple sum approach to monetary aggregation, on the basis of the low elasticities of substitution among the components of the popular M2 aggregate of money.

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