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Demand for money in Bangladesh: a cointegration analysis

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  • Jalal Siddiki

Abstract

The aim of this study is to estimate the demand for real broad (M2) money in Bangladesh using the most recently developed autoregressive distributed lag approach to cointegration analyses. The empirical results show that there is a unique cointegrated and stable long-run relationship among real per capita broad money demand, real per capita income, domestic interest rates and unofficial exchange rate (UM) premiums which act as a surrogate for foreign interest rates. With money as the dependent variable, the results show that the income and interest elasticities are positive while the UM premium elasticity is negative. These results suggest that distortions in the financial and foreign exchange markets should be reduced in order to increase financial saving or monetary accumulation. Our results also reveal that the demand for money in Bangladesh is stable despite the changes in financial and exchange rate policies between 1975 and 1995.

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Bibliographic Info

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

Volume (Year): 32 (2000)
Issue (Month): 15 ()
Pages: 1977-1984

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Handle: RePEc:taf:applec:v:32:y:2000:i:15:p:1977-1984

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Cited by:
  1. P K Narayan & S Narayan, 2008. "Estimating the Demand for Money in an Unstable Open Economy: The Case of the Fiji Islands," Economic Issues Journal Articles, Economic Issues, vol. 13(1), pages 71-91, March.
  2. Rao, B. Bhaskara & Kumar, Saten, 2010. "Error-Correction Based Panel Estimates of the Demand for Money of Selected Asian Countries with the Extreme Bounds Analysis," MPRA Paper 27263, University Library of Munich, Germany.
  3. Kumar, Saten, 2011. "Financial reforms and money demand: Evidence from 20 developing countries," Economic Systems, Elsevier, vol. 35(3), pages 323-334, September.
  4. Mohsen Bahmani-Oskooee & Jia Xu, 2012. "Impact of exchange rate volatility on commodity trade between U.S. and China: is there a third country effect," Journal of Economics and Finance, Springer, vol. 36(3), pages 555-586, July.
  5. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, vol. 21(6), pages 564-578, December.
  6. Yu Hsing & A. M. M. Jamal & Wen-jen Hsieh, 2009. "Application of the monetary policy function to output fluctuations in Bangladesh," Economics Bulletin, AccessEcon, vol. 29(3), pages 2113-2122.

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