The stability of money demand in the long-run: Italy 1861–2011

Daniele, Vittorio; Foresti, Pasquale; Napolitano, Oreste

doi:10.1007/s11698-016-0143-8

Cited by 8 publications

(8 citation statements)

References 55 publications

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“…Among others, the objective of their work was to ascertain the effect of a change in the currency regime on the monetary aggregates and provide a valid empirical model that would serve as a viable tool for policy performance. Daniele et al (2017), following the application of recent econometric technique auto regressive distributed lags (ARDL), examine the stability of money demand in Italy for the period 1861-2011. The results of their work have shown that instability cannot be ruled out when a function of money demand is assessed irrespective of the use of M1 or M2.…”

Section: Literature Review Of the Money Demand Stability In Italian Economymentioning

confidence: 99%

The Long-Run Money Demand Function: Empirical Evidence From Italy

Dritsaki¹,

Dritsaki²

2020

IJEFI

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The stability of money demand is fundamental in ensuring a county's effective monetary policy and it is being threatened when major shocks are taking place. The current paper aims to examine the factors that influence money demand in Italy for the period 1960-2017. Auto regressive distributed lags technique and error correction model were applied to test for long-run and short-run coefficients respectively, while cumulative sum of recursive residuals stability test (CUSUM) evaluated parameters' stability. The results show that there is both a long-run and short-run relationship among the variables used. Real income, long run interest rate and inflation comply with the expectations of monetary theory. Furthermore, the stability tests and unit circle confirm the long -run relationship among variables. Finally, the stability condition is satisfied when money demand for Italy is estimated using the demand for narrow money (M1) for the examined period.

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Section: Literature Review Of the Money Demand Stability In Italian Economymentioning

confidence: 99%

The Long-Run Money Demand Function: Empirical Evidence From Italy

Dritsaki¹,

Dritsaki²

2020

IJEFI

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“…First generation models based on low frequency data rely on liquidity theory of money demand. Following a number of earlier studies (see, e.g., Baharumshah, Mohd, & Masih, 2009; Bahmani‐Oskooee, Bahmani, Kones, & Kutan, 2015; Daniele et al, 2017; Shafiq & Malik, 2018; Folarin & Asongu, 2019), this study considers augmented money demand function on the basis of Liquidity preference theory. Hence, we start with a standard money demand function where real money demand is assumed to be a function of real income ( Y t ) and interest rate ( r t ) as opportunity cost variable.

((), \frac{M_{t}}{P_{t}}) = L ((),, Y_{t}, r_{t})

…”

Section: Methodsmentioning

confidence: 99%

“…Bahmani (2013) estimated positive impact of exchange rate volatility on real broad money demand in the case of 15 less developing countries. Daniele, Foresti, and Napolitano (2017) considered exchange rate volatility and declared it as potential determinant to obtain stable money demand function for Italy. A number of other studies (e.g., Arize, Malindretos, & Grivoyannis, 2005;Bahmani-Oskooee & Ng, 2002;Choi & Oxley, 2004;Higgins & Majin, 2009;Klein, 1977;Laidler, 1980;Nia, Izadi, & Tafti, 2014) may be pointed out where significant role of inflation uncertainty in MDF was found for various developing as well as developed countries.…”

Section: Introductionmentioning

confidence: 99%

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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“…The paper recommends against switching to interest rate targeting policy in place of money targeting policy. Daniele, Foresti, and Napolitano (2017) apply ARDL technique to test the stability of MDF for Italy. The empirical results conclude that while estimating standard MDF, instability cannot be excluded in broad and narrow definitions of money.…”

Section: Studies Related To Developed Countriesmentioning

confidence: 99%

Exploring the Stability of Money Demand Function for GCC Countries

Khawaja

2022

Pak. J. Humanit. Soc. Sci

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It is imperative to explore the stability of the money demand function (MDF) due to its effectiveness in the strength of monetary policy. This paper employs the ARDL approach to examine whether the M3 MDF is stable for the Gulf Cooperation Council (GCC) consisting of six Arabian Gulf countries. The paper also uses CUSUMSQ and CUSUM tests for this purpose. Unit root test results indicate that variables have unit roots with varying degrees. The results reveal that M3 has a cointegration relation with inflation and real output, however, the interest rate is statistically insignificant for most countries across the period under study. However, the CUSUM and CUSUMSQ tests indicate that M3 MDF is unstable across all the GCC countries. It implies that the governments in GCC countries have to be very careful in implementing monetary policy to achieve stability and growth targets.

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The stability of money demand in the long-run: Italy 1861–2011

Cited by 8 publications

References 55 publications

The Long-Run Money Demand Function: Empirical Evidence From Italy

The Long-Run Money Demand Function: Empirical Evidence From Italy

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

Exploring the Stability of Money Demand Function for GCC Countries

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