Demand for Real Money Balances by the Business Sector: An Econometric Investigation
AbstractMonetary economics provides one of the important tools, that is monetary policy, to deal with the macroeconomic problems of the economy. It is concerned with the supply of money and the demand for money. It is often assumed that the money supply is exogenously determined by the authorities and the demand for real money is determined by the market. The demand for money is of crucial importance in the conduct of monetary policy. It helps to understand macroeconomic activities and to prescribe appropriate policy instruments to deal with macroeconomic problems. The effectiveness of the monetary policy, however, depends on the shape and stability of the estimated demand for money function. Empirical studies of the money demand in Pakistan concentrated on the estimation of aggregate money demand function by using conventional regression analysis. The main criticism against the aggregate models of the money demand is that these models lumped two different sectors of the economy, such as the household sector and the business sector. Further, it is argued that these two sectors have diversified behaviour. Their money demand behaviour is subject to different requirements. Sectoral money demand behaviour is thoroughly investigated in developed counties but a very thin literature on the estimation of money demand function by the business sector in developing countries is available, for example, Unger and Zilberfarb (1980) and Cameron and Qayyum (1994). Econometric methodology of these studies is mainly concerned with the estimation of two types of money demand functions such as long-run static and shortrun partial adjustment mechanism. However, the researchers employing the technique of cointegration in the empirical testing of money demand function have cast serious doubt on the results of these studies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.
Volume (Year): 39 (2000)
Issue (Month): 4 ()
Other versions of this item:
- Qayyum, Abdul, 2000. "Demand for Real Money Balances by the Business Sector: An Econometric Investigation," MPRA Paper 2156, University Library of Munich, Germany, revised 2000.
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Ungar, Meyer & Zilberfarb, Benzion, 1980. " The Demand for Money by Firms: The Stability and Other Issues Reexamined," Journal of Finance, American Finance Association, vol. 35(3), pages 779-85, June.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Qayyum, Abdul, 1999. "Demand for Money By Business Sector in a Developing Country: Evidence from Pakistan," MPRA Paper 2583, University Library of Munich, Germany, revised 0199.
- Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
- Wilbratte, Barry J, 1975. "Some Essential Differences in the Demand for Money by Households and by Firms," Journal of Finance, American Finance Association, vol. 30(4), pages 1091-99, September.
- Bera, Anil K. & Jarque, Carlos M., 1982. "Model specification tests : A simultaneous approach," Journal of Econometrics, Elsevier, vol. 20(1), pages 59-82, October.
- James Tobin, 1956. "Liquidity Preference as Behavior Towards Risk," Cowles Foundation Discussion Papers 14, Cowles Foundation for Research in Economics, Yale University.
- Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Siffat Mushtaq & Abdul Rashid & Abdul Qayyum, 2012.
"On the Welfare Cost of Inflation: The Case of Pakistan,"
The Pakistan Development Review,
Pakistan Institute of Development Economics, vol. 51(1), pages 61-96.
- Mushtaq, Siffat & Rashid , Abdul & Qayyum , Abdul, 2013. "On the Welfare Cost of Inflation: The Case of Pakistan," MPRA Paper 47549, University Library of Munich, Germany.
- Khan, Muhammad Arshad & Sajjid, Muhammad Zabir, 2005.
"The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Apporach,"
6752, University Library of Munich, Germany.
- Muhammad Arshad Khan & Muhammad Zabir Sajjid, 2005. "The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Approach," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 10(2), pages 87-99, Jul-Dec.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Khurram Iqbal).
If references are entirely missing, you can add them using this form.