This study examines the demand for broad money (M2) in China using the autoregressive distributed lag (ARDL) cointegration framework. The results based on the bounds testing procedure confirm that a stable, long-run relationship exists between M2 and its determinants: real income, inflation, foreign interest rates and stock prices. Importantly, our results reveal that stock prices have a significant wealth effect on long-and short-run broad money demand; its omission can lead to serious misspecifications in the money demand function (MDF). This finding is consistent with the notion that asset inflation (deflation) has systematic influence on the pattern of monetary aggregates.
This paper investigates the relationship between stock prices and the real money demands for China within a cointegrated framework. This study reports two important results. First, test results reveal that a stable long-term relationship exists between broad money (M2) and its determinants including real income, foreign interest rate, and stock prices. Second, stock prices have a significant substitute (positive) effect on long-run broad-money (M2) demand and its omission can lead to serious misspecification in the money demand function in both the short-and long-run. Finally, we demonstrate that long-run income elasticity is not significantly different from unity with the inclusion of stock prices in the money demand equation.
This paper investigates the links between inflation, its uncertainty and economic growth in five ASEAN countries over the period 1980: Q1-2011: Q3. We rely on the Exponential GARCH (EGARCH) model to explore the causal relationship among the three variables. The major findings are: (i) inflation uncertainty increases more in response to positive inflation surprises than to negative surprises in all countries; (ii) inflationary shocks affect positively inflation uncertainty as predicted by the Friedman-Ball hypothesis; (iii) there is no evidence to suggest that inflation uncertainty causes inflation and; (iv) there is evidence that inflation affects growth negatively, both directly and indirectly (via the inflation uncertainty channel). The indirect effect is clearly stronger as it applies in all countries in the sample.
The predictive power of the monetary model for the Malaysian ringgit/US dollar (RM/USD) rate is analysed using quarterly data ending in 2006:Q3. We find compelling evidence of a long-run relationship between exchange rates and the economic fundamental determinant. Macroeconomic factors systematically affect the long-run movement of the RM/USD rate. Additionally, the RM/USD rate was overvalued by about 10% several quarters before the 1997 crisis; after the crisis, rates fluctuated close to the equilibrium value. The out-of-sample forecasts demonstrate that the monetary model outperforms the naive random walk model. The monetary and Purchasing Power Parity (PPP) models do well at the four to eight quarters horizon.
This paper investigates the long-run dynamics of black and official exchange rates for ten African countries. Our major findings are, first, that parity holds more favorably when the black market rate is used to validate the purchasing power parity hypothesis. The evidence supports the notion that the speed of adjustment is much faster in the black market than in the official market. Second, the two rates are connected in the long run, with the official rate adjusting toward the black market rate for the majority of cases. Finally, we find the long-run informationally efficient hypothesis is supported in the majority of African countries.KEY WORDS: African countries, black market exchange rate, bounds tests, purchasing power parity.
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