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Money demand amid financial sector developments in Malaysia

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  • Eu Chye Tan
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    Abstract

    Both long and short run real money demand functions of Malaysia with money variously defined as M0, M1 and M2 have been estimated using the Johansen cointegration technique and the general-to-specific approach respectively. The period under review is 1973Q1-1991Q4. While liberalization and innovation in the Malaysian financial system have not ruled out the existence of stable long run money demand relationships as attested to by the presence of cointegrating vectors, they have rendered short run relationships unstable. Hence, it may not be appropriate for one to conclude that monetary policy efficacies have been sacrosanct to the financial liberalization and innovation process on the basis of cointegrating relationships. This is especially true as monetary policy is essentially a short run stabilization policy aimed at ironing out undue macroeconomic fluctuations. This prompted us to re-estimate short run money demand functions over more recent periods in order to boost the policy relevance of the estimated parameters.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 29 (1997)
    Issue (Month): 9 ()
    Pages: 1201-1215

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    Handle: RePEc:taf:applec:v:29:y:1997:i:9:p:1201-1215

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    8. Dickey, David A & Pantula, Sastry G, 2002. "Determining the Order of Differencing in Autoregressive Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 18-24, January.
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    11. Mohsen Bahmani-Oskooee & Miquel-Angel Galindo Martin & Farhang Niroomand, 1998. "Exchange rate sensitivity of the demand for money in Spain," Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 607-612.
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    Cited by:
    1. Bahmani-Oskooee, Mohsen & Tanku, Altin, 2006. "Black market exchange rate, currency substitution and the demand for money in LDCs," Economic Systems, Elsevier, vol. 30(3), pages 249-263, October.
    2. Dahalan, Jauhari & Sharma, Subhash C. & Sylwester, Kevin, 2005. "Divisia monetary aggregates and money demand for Malaysia," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1137-1153, January.
    3. Shahrestani, Hamid & Sharifi-Renani, Hosein, 2007. "Demand for money in Iran: An ARDL approach," MPRA Paper 11451, University Library of Munich, Germany.
    4. Subramanian S. Sriram, 2009. "The Gambia: Demand for Broad Money and Implications for Monetary Policy Conduct," IMF Working Papers 09/192, International Monetary Fund.
    5. Michaël GOUJON & Sylviane GUILLAUMONT JEANNENEY & Christopher ADAM, 2002. "Currency substitution and the transactions demand for money in Vietnam," Working Papers 200228, CERDI.
    6. Raditya Sukmana & Salina H. Kassim, 2010. "Roles of the Islamic banks in the monetary transmission process in Malaysia," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 3(1), pages 7-19, April.
    7. Sriram, Subramanian S., 2002. "Determinants and stability of demand for M2 in Malaysia," Journal of Asian Economics, Elsevier, vol. 13(3), pages 337-356.
    8. Dahalan, Jauhari & Sharma, Subhash C. & Sylwester, Kevin, 2007. "Scale variable specification in a money demand function for Malaysia," Journal of Asian Economics, Elsevier, vol. 18(6), pages 867-882, December.
    9. Muhd-Zulkhibri Abdul Majid, 2004. "Reassessing The Stability of Broad Money Demand in Malaysia," Macroeconomics 0405020, EconWPA.
    10. James, Gregory A., 2005. "Money demand and financial liberalization in Indonesia," Journal of Asian Economics, Elsevier, vol. 16(5), pages 817-829, October.
    11. Stephen Dobson & Carlyn Ramlogan, 2001. "Money Demand and Economic Liberalization in a Small Open Economy—Trinidad and Tobago," Open Economies Review, Springer, vol. 12(3), pages 325-339, July.
    12. Baharumshah, Ahmad Zubaidi & M. Masih, A. Mansur & Azali, M., 2002. "The stock market and the ringgit exchange rate: a note," Japan and the World Economy, Elsevier, vol. 14(4), pages 471-486, December.

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