Stability of Demand for Money in India: Evidence from Monetary and Liquidity Aggregates

Padhan, Purna Chandra

doi:10.5539/ijef.v3n1p271

Cited by 10 publications

(5 citation statements)

References 35 publications

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“…Thus, results on the stability of MDF after structural breaks in the macroeconomic series led by financial innovations in the late 1970s and 1980s are mixed in the case of India in particular and throughout the globe in general. Most of the studies support the view that money demand is stable even after economic reforms (e.g., Adil et al, 2020;Arora and Osatieraghi, 2016;Muralikrishna Bharadwaj & Pandit, 2010;Padhan, 2011 in case of India). Conversely, some studies support unstable money demand after reform (e.g., Aggarwal, 2016;Singh & Pandey, 2010 in case of India).…”

Section: Literature Reviewmentioning

confidence: 93%

Revisiting Money Demand Stability in India: Some Post-reform Evidence (1996–2016)

Adil

Haider

Hatekar

2018

The Indian Economic Journal

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In the evidence of the globalised world economy and changing economic structure, the traditional policies require a close examination. This is particularly true in the case of emerging economies like India, which have experienced a rapidly changing policy environment since 1991. The demand for money is an important ingredient for monetary policy formulation. Therefore, the present study re-examines the stability and specification issues of money demand in India’s post-reform era. The study takes care of structural breaks in the macroeconomic series while using a unique quarterly dataset from 1996: Q2 to 2016: Q3. Despite the structural breaks, the application of Gregory and Hansen (1996) and autoregressive distributed lag models demonstrate the existence of a stable short-and long-run relationships between real money balances and their determinants. These empirical findings are having a lot of policy implications in the current monetary policy framework of India—inflation targeting framework.

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Section: Literature Reviewmentioning

confidence: 93%

Revisiting Money Demand Stability in India: Some Post-reform Evidence (1996–2016)

Adil

Haider

Hatekar

2018

The Indian Economic Journal

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“…The effect of economic reforms on the stability of money demand was mixed. A majority of the studies support the view that money demand was stable even after economic reforms (for instance Adil, Haider, & Hatekar, 2018; Arora & Osatieraghi, 2016; Muralikrishna Bharadwaj & Pandit, 2010; Padhan, 2011). Some studies, however, find an unstable money demand after the reforms (for instance Aggarwal, 2016; Inoue & Hamori, 2009; Singh & Pandey, 2010).…”

Section: Literature Reviewmentioning

confidence: 96%

The Impact of Financial Innovation on the Money Demand Function: An Empirical Verification in India

Adil

Hatekar

Sahoo

2020

Margin: The Journal of Applied Economic Research

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Traditional money demand functions are often criticized for persistent over-prediction, implausible parameter estimates, highly serially correlated errors and unstable money demand. This study argues that some of these problems may have emerged for the lack of factoring financial innovation into the money demand function. This study estimates money demand for India during the post-reform period, from 1996:Q2 to 2016:Q3. The money demand function is estimated with the linear ARDL approach to cointegration developed by Pesaran, Shin, & Smith (2001), Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16(3), 289–326, after employing various proxies for financial innovation. In conclusion, the study finds that there is a stable long-run relationship among variables, such as real money balances, and the scale and opportunity cost variables. In a nutshell, the study assesses the relative importance of financial innovation variables in the money demand equation, and finds that financial innovation plays a very significant role in the money demand specification and its stability. JEL Classification: E41, E44, E42, E52, O16, O53

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“…To complement the diagnostic tests and ascertain further the validity of the short run and long run models, it is a common practice in the empirical literature to test for the structural stability of the parameters using the cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of residuals (CUSUMSQ) tests developed by Brown, Durbin and Evans (1975). In this regard, this study followed Dagher and Kovanen (2011) and Padhan (2011) and applied the CUSUM and CUSUMSQ to the residuals of the error correction model reported in Table (4). These tests which are based on the cumulative sums of the estimated residuals have been intensively used for testing linear regressions; they have further been extended to nonlinear regression functions such as the threshold autoregressive (TAR) and the quadratic polynomial function models (Kirsh and Kamgaing, 2011;Tenaw and Demeke ,2020).…”

Section: Stability Testmentioning

confidence: 99%

Nonlinear Effects of Public Debt on Economic Growth: The Case of Rwanda

2023

JESD

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The purpose of this paper is to investigate the nonlinear impact of public debt on economic growth and establish the long and short run relationship between economic growth and its determinants in Rwanda. To this end, a quadratic polynomial function in debt combined with the autoregressive distributed lag (ARDL) bounds testing approach to co-integration have been employed for econometric analysis using time series data covering the period 1970-2020. Following previous empirical studies, this research assumed that at lower level, public debt may be growth-enhancing, while at higher level, it is detrimental to growth. Therefore, this study attempted to assess whether in the case of Rwanda, there exists a threshold level or a turning point above which the impact of public debt on economic growth shifts from positive to negative. The empirical results of this study strongly suggest the presence of an inverted U-shaped or concave relationship between public debt and economic growth in Rwanda. The turning point above which additional public debt becomes harmful to growth has been evaluated at a public debt-to-GDP ratio equal to 53.6%. The estimated threshold is relatively higher than the public debt convergence policy benchmark of 50% of GDP adopted in Rwanda within the East African Community. This result would be useful for policy makers in the design of a well-informed macroeconomic and public debt management strategy.

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Stability of Demand for Money in India: Evidence from Monetary and Liquidity Aggregates

Cited by 10 publications

References 35 publications

Revisiting Money Demand Stability in India: Some Post-reform Evidence (1996–2016)

Revisiting Money Demand Stability in India: Some Post-reform Evidence (1996–2016)

The Impact of Financial Innovation on the Money Demand Function: An Empirical Verification in India

Nonlinear Effects of Public Debt on Economic Growth: The Case of Rwanda

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