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Application of the Alternative Techniques to Estimate Demand for Money in Developing Countries

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  • Singh, Rup
  • Kumar, Saten

Abstract

In this paper, we applied alternative time series techniques and obtained similar summaries of demand for money relations for twelve developing countries. This indicates that adequate attention should be paid to the purpose of research and interpretation of results rather than to econometric techniques. We also find that income elasticities are close to unity for almost all of our sample countries and the interest rate elasticities are well determined and significant. Further, it is shown that demand for money in these countries is temporally stable and therefore the respective monetary authorities may target money supply as opposed to the rate of interest.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19295.

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Date of creation: 21 Apr 2007
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Handle: RePEc:pra:mprapa:19295

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Keywords: Demand for money; Cointegration; Monetary policy;

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References

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  1. Pradhan, Basanta K. & Subramanian, A., 2003. "On the stability of demand for money in a developing economy: Some empirical issues," Journal of Development Economics, Elsevier, Elsevier, vol. 72(1), pages 335-351, October.
  2. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
  3. B. Bhaskara Rao, 1995. "Unit roots cointegration and the demand for money in India," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 2(10), pages 397-399.
  4. Abbas Valadkhani & Mohammad Alauddin, 2003. "Demand for M2 in Developing Countries: An Empirical Panel Investigation," School of Economics and Finance Discussion Papers and Working Papers Series, School of Economics and Finance, Queensland University of Technology 149, School of Economics and Finance, Queensland University of Technology.
  5. Friedman, Milton & Schwartz, Anna J, 1991. "Alternative Approaches to Analyzing Economic Data," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 39-49, March.
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  7. Subramanian S. Sriram, 1999. "Survey of Literatureon Demand for Money," IMF Working Papers 99/64, International Monetary Fund.
  8. Allan w. Gregory & Bruce E. Hansen, 1992. "residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers, Queen's University, Department of Economics 862, Queen's University, Department of Economics.
  9. Narayan, Paresh Kumar, 2007. "Is money targeting an option for Bank Indonesia?," Journal of Asian Economics, Elsevier, Elsevier, vol. 18(5), pages 726-738, October.
  10. Neil R. Ericsson & James G. MacKinnon, 2002. "Distributions of error correction tests for cointegration," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 5(2), pages 285-318, 06.
  11. Ghartey, Edward E., 1998. "Money demand in Jamaica: Evidence from cointegration, error correction modelling, and exogeneity," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 9(1), pages 33-43.
  12. James, Gregory A., 2005. "Money demand and financial liberalization in Indonesia," Journal of Asian Economics, Elsevier, Elsevier, vol. 16(5), pages 817-829, October.
  13. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(352), pages 661-92, December.
  14. M. Sumner, 2009. "Demand for money in Thailand," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(10), pages 1269-1276.
  15. R. W. Hafer & Ali Kutan, 2001. "Financial Innovation And The Demand For Money: Evidence From The Philippines," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 17-27.
  16. Samarjit Das & Kumarjit Mandal, 2000. "Modeling Money Demand in India: Testing Weak, Strong & Super Exogeneity," Indian Economic Review, Department of Economics, Delhi School of Economics, Department of Economics, Delhi School of Economics, vol. 35(1), pages 1-19, January.
  17. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  18. Mohsen Bahmani-Oskooee & Hafez Rehman, 2005. "Stability of the money demand function in Asian developing countries," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(7), pages 773-792.
  19. Fiona Atkins, 2005. "Financial Crises and Money Demand in Jamaica," Birkbeck Working Papers in Economics and Finance, Birkbeck, Department of Economics, Mathematics & Statistics 0512, Birkbeck, Department of Economics, Mathematics & Statistics.
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Citations

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Cited by:
  1. Saten Kumar, 2011. "Cointegration and the demand for energy in Fiji," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 35(1), pages 85-97.
  2. Saten Kumar, 2011. "Estimating export demand equations in selected Asian countriess," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 4(1), pages 5-16, February.
  3. Rup Singh & Saten Kumar, 2010. "Some empirical evidence on the demand for money in the Pacific Island countries," Studies in Economics and Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 27(3), pages 211-222, August.

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