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Financial Innovation And The Demand For Money: Evidence From The Philippines

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Author Info
R. W. HAFER
ALI M. KUTAN

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Abstract

This paper tests whether financial innovations in the Philippines distorted the long-run relation between real money balances, income and interest rates. Using data for the monetary base, M1 and M3 over the period 1980--1998, we cannot reject the hypothesis that there does not exist a standard money demand relation between M1 and M3, real income and interest rates. However, when we allow for the impact of financial innovations, this finding is reversed for M1. Estimates of ECM models for these measures also show that financial innovations impacted real money balances for M1, but not M3. This evidence supports the Philippine central bank's choice of a monetary aggregate as its policy instrument to achieve its policy objectives. [E41, E58]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 17 (2003)
Issue (Month): 1 (April)
Pages: 17-27
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Handle: RePEc:taf:intecj:v:17:y:2003:i:1:p:17-27

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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.:

  1. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  2. Martina Copelman, 1996. "Financial innovation and the speed of adjustment of money demand: evidence from Bolivia, Israel, and Venezuela," International Finance Discussion Papers 567, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. R. W. Hafer & Scott E. Hein, 1982. "The shift in money demand: what really happened?," Review, Federal Reserve Bank of St. Louis, issue Feb, pages 11-16. [Downloadable!]
  4. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. B Bhaskara Rao & Singh Rup, 2005. "Demand for Money in India: 1953-2003," Macroeconomics 0510002, EconWPA. [Downloadable!]
    Other versions:
  2. B Bhaskara Rao & Rup Singh, 2005. "A Cointegration And Error Correction Approach To Demand For Money In Fiji: 1971-2002," Macroeconomics 0511012, EconWPA. [Downloadable!]
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