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Money demand: a study on the Indonesian influential factors

Author

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  • Nano Prawoto

    (Faculty of Economics, Universitas Muhammadiyah Yogyakarta)

Abstract

The role of money demand in monetary policy is indisputable. This study analyzes the determinants of Indonesian money demand. It uses Insukindro-Error Correction Model, based on Keynesian and Monetarist theories. It finds that model based on Monetarist theory is preferable. Estimation on the chosen model suggests that money demand for real currency is influenced, in the short term, by total wealth, consumer price index, the red letter religious day, monetary crisis, and in the long term, by domestic interest rates, foreign interest rates, consumer price index, and stock price index. In addition, monetary policy using Certificate of Bank Indonesia, does not influence money demand.

Suggested Citation

  • Nano Prawoto, 2010. "Money demand: a study on the Indonesian influential factors," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 2(3), pages 223-236, April.
    • Handle: RePEc:uii:journl:v:2:y:2010:i:3:p:223-236
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    References listed on IDEAS

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    7. Shigeyuki Hamori, 2008. "Empirical Analysis of the Money Demand Function in Sub-Saharan Africa," Economics Bulletin, AccessEcon, vol. 15(4), pages 1-15.
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    10. Dieter Nautz & Ulrike Rondorf, 2011. "The (in)stability of money demand in the euro area: lessons from a cross-country analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(4), pages 539-553, November.
    11. Domowitz, Ian & Elbadawi, Ibrahim, 1987. "An error-correction approach to money demand : The case of Sudan," Journal of Development Economics, Elsevier, vol. 26(2), pages 257-275, August.
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    Cited by:

    1. Magdalena Osinska & Marcin Blazejowski & Pawel Kufel & Tadeusz Kufel & Jacek Kwiatkowski, 2020. "Narrow Money Demand in Indonesia and in Other Transitional Economies – Model Selection and Forecasting," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 1291-1311.
    2. repec:idn:jimfjn:v:3:y:2018:i:specialissued:p:1-16 is not listed on IDEAS
    3. Maulana Rifki Aditia & Eko Fajar Cahyono, 2018. "Responsiveness Of Social Values And Real Gross Domestic Bruto On Money Demand In Indonesia," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 3(Special I), pages 63-78, May.

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    More about this item

    Keywords

    Money demand; keynesian and monetarist model; insukindro-error correction model;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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