Long‐ and short‐run determinants of the demand for money in New Zealand: A cointegration analysis

Valadkhani, Abbas

doi:10.1080/00779950209544373

Cited by 3 publications

(2 citation statements)

References 23 publications

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“…It implies that depreciation of Pakistani rupee results into decline of real money demand. Our findings on this relationship are similar to those by Hye et al (2009), Suliman and Dafaalla (2011) and Valadkhani (2008). This might be due to the strength of wealth effect versus substitution effect in the economy.…”

Section: Resultssupporting

confidence: 93%

Effects of inflation uncertainty and exchange rate volatility on money demand in Pakistan: Bayesian econometric analysis

Akbar

2021

Int. J Fin Econ

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The study explores determinants of money demand (M2) in a developing economy of Pakistan using annual data ranging 1976-2017. The study contributes by two ways. Firstly, it specifically examines the potential impact of exchange rate volatility and inflation uncertainty along with conventional determinants on money demand in Pakistan. Secondly, Bayesian Statistical inference is employed and the estimates are interpreted along with highest posterior density intervals (HPDI) with probability statements in order to cope with the issue of the instability of parameters. The analysis explores the positive impact of real income as well as share prices and the negative effect of interest rate on money demand as predicted by theory and earlier findings. Significant negative estimate of exchange rate shows that substitution effect overcomes wealth effect during exchange rate variations. But magnitude of exchange rate elasticity seems to depend upon strength of depreciation rate and/or future expectations, which may be considered an important research question for future work. Insignificance of exchange rate volatility for money demand in Pakistan is found which requires further research as to know about the behaviour of wealth effect and expectation effect during forex market uncertainty. Most importantly, inflation uncertainty is found to be a potential determinant of money demand in Pakistan. Rising uncertainty of inflation rate seems to have direct effects on precautionary and transaction motives of the demand for money. Findings of this study provides useful insights for policymaking in Pakistan as well as in other developing economies by suggesting inflation uncertainty as the potential determinant of money demand. Finally, Bayesian estimates along with HPDI estimates provide new information about the effects and particularly about the possible range of elasticities.

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Section: Resultssupporting

confidence: 93%

Effects of inflation uncertainty and exchange rate volatility on money demand in Pakistan: Bayesian econometric analysis

Akbar

2021

Int. J Fin Econ

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“…Siklos (1995aSiklos ( , 1995b examined the cointegrating links between M3, expected inflation and short term interest rates (the difference between NZ and US rates) over the 1981-1994 period and attained implausibly high income elasticities varying between 2 to 6. The income elasticities attained by Choi and Oxley (2004) and Valadkhani (2002) also seem unexpectedly high at around 1.7 and 1.5, respectively. An income elasticity estimate that is more in line with expectations was provided by Razzak (2001) who found the income elasticity of monetary base to be around unity over the 1988-1997 period while asserting that the correlation between money and real output is stronger than that between money and inflation.…”

Section: The Case Of New Zealandmentioning

confidence: 99%

Australasian money demand stability: application of structural break tests

Kumar

Webber

2013

Applied Economics

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Estimating a Function of Real Demand for Money in Pakistan: An Application of Bounds Testing Approach to Cointegration

Mall¹

2013

IJCA

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This paper attempts to model a real demand for money function of Pakistan. For this purpose we apply bounds test based cointegration technique using the time series data for the period 1973 to 2010. Our findings included three determinants: 1) real income and 2) foreign exchange contain positive relation as well as for both long run and short run dynamics they are the most significant factors of real demand for money. While we found real demand for money is negatively affected by 3) call money rate (is proxied by interest on deposit). However being in a short-run dynamic specification, money demand is found important with the elasticities of real income, exchange rate and call money rate being much smaller in the short-run than in long-run. Stability tests of the paper do not show any serious structural change in the model. As for both CUSUMSQ and CUSUM statistics, showing the critical value line within the bounds that present the model is stable. This model strongly recommends the real demand for M2 is an important monetary aggregate in terms of policy implications of our results including the suitability of the model in Pakistan. Keywords 1) Real income 2) Foreign exchange rate 3) Call money rate 4) Call money rates 5) Interest rate 6) Autoregressive distributed lag (ARDL) 7) GDP deflator 8)

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Long‐ and short‐run determinants of the demand for money in New Zealand: A cointegration analysis

Cited by 3 publications

References 23 publications

Effects of inflation uncertainty and exchange rate volatility on money demand in Pakistan: Bayesian econometric analysis

Effects of inflation uncertainty and exchange rate volatility on money demand in Pakistan: Bayesian econometric analysis

Australasian money demand stability: application of structural break tests

Estimating a Function of Real Demand for Money in Pakistan: An Application of Bounds Testing Approach to Cointegration

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