Survey of Literatureon Demand for Money: Theoretical and Empirical Work with Special Reference to Error-Correction Models

Sriram, Subramanian

doi:10.5089/9781451848540.001

Cited by 61 publications

(49 citation statements)

References 181 publications

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“…The review of the literature is beyond the scope of this paper, but the interested reader could consult Sriram (1999). This section focuses on the previous findings for Croatia and Serbia.…”

Section: Findings From Previous Studies -Croatia and Serbiamentioning

confidence: 99%

Money demand during crisis – (post) transitional perspective

Botrić

2017

oec

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The existing literature on money demand in Croatia and Serbia is mostly concerned with identifying whether traditional factors are present and to what extent. The aim of this paper is to extend the traditional concept with variables that are more related to specific recent developments in analysed countries – transition and crises. Specifically, the precautionary motives for holding money are expected to be important during the crises, while financial transaction motives are expected to be important in the period before the crises. Additionally, instead of traditional cointegration approach, an ARDL testing procedure was utilized in the paper in order to avoid specific problems related to the unit root identification problems. Comparative perspective of the analysis should help to distinguish between common and specific features in the analysed countries.

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Section: Findings From Previous Studies -Croatia and Serbiamentioning

confidence: 99%

Money demand during crisis – (post) transitional perspective

Botrić

2017

oec

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“…Real GDP series are used to represent the aggregate income (Y) and deposit interest rates and the rates of inflation are used as proxies for the opportunity cost of holding money (i). The Real GDP variable represents the transaction or wealth effects and economic theory predicts a positive relationship between money and output (Sriram 1999). At the same time, economic theory predicts a negative relationship between money and the variables representing the opportunity costs of holding money.…”

Section: Variable Selection and Data Transformationsmentioning

confidence: 99%

“…Sriram (1999) points out that the selection of opportunity cost variables is the main factor for the differences of the estimated money demand functions.…”

Section: Variable Selection and Data Transformationsmentioning

confidence: 99%

“…The majority of empirical works on the money demand functions were conducted on the case of developed countries (see for example Sriram 1999). Most of the empirical literature on developed countries represents the demand for money as a function of only two variables: aggregate income, usually represented by the real GDP, and interest rates as an approximation of the opportunity cost of holding money.…”

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confidence: 99%

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Money-in-the-Utility-Function: Model Simulations and Money Demand Estimation in the Case of the Republic of Macedonia

Ivanov

Petkovski

Naumovska

2015

South East European Journal of Economics and Business

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“…3) GNP nets out intermediate transactions. Sriram (1999(a): 21) asserted that because of these problems, some other measures like bank debits, bank loans and gross debits to demand deposits must also be employed. On the other side, Bomberger and Makinen (1980) claimed that since gross national product, net national product and national income include exports of domestically produced goods and services and exclude the value of imported goods and services, the demand for money can be estimated in the best way by gross national expenditure which includes import and excludes export.…”

Section: Variables Used In Money Demand Modelmentioning

confidence: 99%

The Effects of The Interest Rate Volatility on Turkish Money Demand

Çeliköz¹,

Arslan²

2011

IBR

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This study aims to examine, especially the effects of interest rate (time deposit and treasury bills) volatilities on the demand for money in case of Turkey for 1987Turkey for : 1-2007: 3 period. Quarterly data of all variables are used as the research data and Pesaran, Shin and Smith (2001) 's bound test is used as the research method. In computing interest rate volatilities, moving-sample standart deviation method which is proposed by Kenen and Rodrik (1986) and Koray and Lastrapes (1989) is used. According to the results, the long run coefficient of gross domestic product is positive and statistically significant as expected. Although, the volatility of interest rate on treasury bills is positive as expected, it is statistically insignificant. On the other side, the coefficient of volatility of interest rate on time deposit, the coefficient of inflation rate and the coefficient of exchange rate are all negative and statistically significant as expected.Keywords: Money Demand, Bound Test, Interest Rate Volatility IntroductionExamining the determinant of the demand for money is important in order to create and conduct a healthy monetary policy which is closely related to whole economy. For example, a factor that increases the demand for money may adversely affect economic performance by increasing nominal income and velocity of money circulation.This study aims to examine, especially the effects of interest rate volatilities in case of Turkey along with traditional factors affecting the demand for money. Since the increase in interest rate volatility is expected to lead structural changes in the structure of behavioral relations which defines financial sector (Walsh, 1984: 133) it will also greatly affect the demand for money. But, it must be stressed here that the nominal interest rate includes two components: Expected real rate of return and an expected rate of inflation. Since nominal interest rate volatility may reflect the volatility of either one or both of these components, it can be said that the impact of interest rate volatility could have emerged in two-ways. Although, there is a consensus among economists that the volatility of real interest rate increases money demand, the effect of the volatility of inflation is arguable. But, empirical evidences indicate that there is a negative relationship between volatility of inflation and the demand for money. The justification: an increase in the volatility of inflation makes all nominal assets including money riskier to hold since their value in terms of goods and services becomes unpredictable. The greater risk will cause some investors to shift part of their wealth out of nominal assets into tangible assets such as commodity inventories. Therefore, to the extent that volatility of nominal interest rate reflects volatility of inflation, volatility of nominal interest rates could have a negative effect on money demand (Garner, 1986; 30-31). While the theoretical perspectives reveal multifaceted effects, issues relating to empirical studies hav...

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Survey of Literatureon Demand for Money: Theoretical and Empirical Work with Special Reference to Error-Correction Models

Cited by 61 publications

References 181 publications

Money demand during crisis – (post) transitional perspective

Money demand during crisis – (post) transitional perspective

Money-in-the-Utility-Function: Model Simulations and Money Demand Estimation in the Case of the Republic of Macedonia

The Effects of The Interest Rate Volatility on Turkish Money Demand

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