Money: The art of keeping it

In 2010, government of Malaysia strived to bring the country to be a high income, inclusive and sustainable nation by year 2020 through its New Economic Model (NEM) introduced in its Economic Transformation Programme (ETP). However this would also hint a sign rising price in many things, hence a higher living cost. Then in 2012 budget, the government announced a salary increment between 7 to 13% to the public sector employees. The citizens for once hope to be able to have a higher purchasing power but this was not the case. Adding to a series of existing events like oil price shock and global financial crisis, Malaysia incurred a new electricity tariff, subsidies cut and the skyrocket housing price. Even with the salary increment, it still does not help to ease out the rising living cost. Having said that, the amount of money to hold will also be affected and the ability to survive in this economy is questionable. Therefore this study attempts to i) determine the long run effect of real income, credit card and interest rate on demand for money in Malaysia, ii) examine the causal relationship between real money demand and chosen independent variables for the period of 2005Q1 to 2013Q4. By using multivariate framework, this study employs money demand function with Gross Domestic Product (GDP), credit card and interest rate as independent variables. Results show that there is a long run relationship between real money balance with GDP, credit card and interest rate. It is also found that relationship between real money balances and GDP is bi-directional.