Roles of Stock Price and Exchange Rate in Slovakia's Money Demand Function and Policy Implications

Hsing, Yu

doi:10.1007/s11300-007-0146-z

Cited by 4 publications

(2 citation statements)

References 30 publications

(33 reference statements)

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“…Second, if rising income increases the borrowing capacity of the people then the demand for money may increase more than the increase in income. Our findings support the Keynesian notion of transaction demand for money and are consistent with Hsing (2007), Azim, Ahmed, Ullah, Zaman, and Zakaria (2010) and Faridi and Akhtar (2013). Posterior mean estimate of interest rate is negative and statistically significant as predicted by theory.…”

Section: Resultssupporting

confidence: 90%

“…Coefficient estimate of share price index is significant and positive with 0.2454 as the posterior mean estimate which may vary from 0.1462 to 0.3545 as shown by 95% HPDI. It signifies that positive wealth effect operates in case of Pakistan where an increase in stock market prices increases the demand for money which is in line with Friedman (1988), Hsing (2007) and Hye et al (2009).…”

Section: Resultssupporting

confidence: 72%

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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: 90%

Section: Resultssupporting

confidence: 72%