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Asymmetric Effects of Economic Uncertainty on Money Demand Function in Bangladesh: A Nonlinear ARDL and Cumulative Fourier Causality Approach

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  • S. M. Woahid Murad

    (Department of Economics, Noakhali Science and Technology University, Noakhali, Bangladesh)

Abstract

This study revisits the demand for money in Bangladesh considering economic uncertainty and covering 1999:M1 to 2018:M6. We employed a nonlinear ARDL model and cumulative Fourier causality tests. In contrast to the previous studies, we obtain higher exchange rate elasticity and lower income elasticity of money demand function. It is found that people hold less money in the short run when uncertainty increases, albeit it does not sustain in the long run. On the contrary, demand for money rises in the short run and declines in the long run when uncertainty decreases. We also find a unidirectional causality from income and economic uncertainty to money after considering the Fourier causality test. Therefore, a fiscal policy should be considered along with a monetary policy to tune Bangladesh’s economy.

Suggested Citation

  • S. M. Woahid Murad, 2021. "Asymmetric Effects of Economic Uncertainty on Money Demand Function in Bangladesh: A Nonlinear ARDL and Cumulative Fourier Causality Approach," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 20(3), pages 201-213, December.
    • Handle: RePEc:ijb:journl:v:20:y:2021:i:3:p:201-213
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    More about this item

    Keywords

    Money Demand; Output Uncertainty; Nonlinear ARDL; Fourier Causality; Bangladesh.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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