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Reassessing The Stability of Broad Money Demand in Malaysia

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Author Info
Muhd-Zulkhibri Abdul Majid (Central Bank of Malaysia)

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Abstract

This paper re-examines the money demand in Malaysia covering the period from 1974 to 2001, a period characterised by various events particularly the financial sector liberalisation, changes in monetary framework and currency crises. Our results support the existence of fairly stable long-run money demand function despite the various changes and developments in the economy. However, there is an evidence of instability in short-run money demand. On this ground, the monetary targeting framework in Malaysia seems to be appropriate at least in the 1990s and monetary aggregate continue to be a useful longer-term indicator in the formulation of monetary policy.

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Paper provided by EconWPA in its series Macroeconomics with number 0405020.

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Length: 30 pages
Date of creation: 19 May 2004
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Handle: RePEc:wpa:wuwpma:0405020

Note: Type of Document - pdf; pages: 30
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Web page: http://129.3.20.41

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Keywords: money demand cointegration error-correction Malaysia

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E - Macroeconomics and Monetary Economics

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References listed on IDEAS
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  1. Tan, Eu Chye, 1997. "Money Demand amid Financial Sector Developments in Malaysia," Applied Economics, Taylor and Francis Journals, vol. 29(9), pages 1201-15, September. [Downloadable!] (restricted)
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  3. Mansor H. Ibrahim, 2001. "Financial Factors And The Empirical Behavior Of Money Demand: A Case Study Of Malaysia," International Economic Journal, Korean International Economic Association, vol. 15(3), pages 55-72, October. [Downloadable!] (restricted)
  4. Mansor H. Ibrahim, 1998. "An Econometric Analysis of Money Demand and Its Stability in the Malaysian Economy," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 33(1), pages 53-66, January.
  5. Johansen, S., 1991. "Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand Data," Papers 78, Helsinki - Department of Economics.
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  6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  7. Mario I. Bléjer & David Burton & Steven Vincent Dunaway & Gyorgy Szapary, 1991. "China: Economic Reform and Macroeconomic Management," IMF Occasional Papers 76, International Monetary Fund.
  8. Gupta, K L & Moazzami, Bakhtiar, 1990. "Nominal vs Real Adjustment in Demand for Money Functions," Applied Economics, Taylor and Francis Journals, vol. 22(1), pages 5-12, January.
  9. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  10. Bahmani-Oskooee, Mohsen & Pourheydarian, Mohammad, 1990. "Exchange Rate Sensitivity of Demand for Money and Effectiveness of Fiscal and Monetary Policies," Applied Economics, Taylor and Francis Journals, vol. 22(7), pages 917-25, July.
  11. Honohan, Patrick, 1994. "Inflation and the demand for money in developing countries," World Development, Elsevier, vol. 22(2), pages 215-223, February. [Downloadable!] (restricted)
  12. Neil R. Ericsson & David F. Hendry & Hong-Anh Tran, 1993. "Cointegration, seasonality, encompassing, and the demand for money in the United Kingdom," International Finance Discussion Papers 457, Board of Governors of the Federal Reserve System (U.S.).
  13. DeJong, David N. & Nankervis, John C. & Savin, N. E. & Whiteman, Charles H., 1992. "The power problems of unit root test in time series with autoregressive errors," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 323-343. [Downloadable!] (restricted)
  14. Chowdhury, Abdur R, 1997. "The Financial Structure and the Demand for Money in Thailand," Applied Economics, Taylor and Francis Journals, vol. 29(3), pages 401-09, March. [Downloadable!] (restricted)
  15. Eu Chye Tan, 1997. "Money demand amid financial sector developments in Malaysia," Applied Economics, Taylor and Francis Journals, vol. 29(9), pages 1201-1215, September. [Downloadable!] (restricted)
  16. Hendry, David F & Ericsson, Neil R, 1991. "An Econometric Analysis of U.K. Money Demand in 'Monetary Trends in the United States and the United Kingdom' by Milton Friedman and Anna Schwartz," American Economic Review, American Economic Association, vol. 81(1), pages 8-38, March. [Downloadable!] (restricted)
  17. Ghysels, Eric, 1990. "Unit-Root Tests and the Statistical Pitfalls of Seasonal Adjustment: The Case of U.S. Postwar Real Gross National Product," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 145-52, April.
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  19. Bahmani-Oskooee, Mohsen & Martin, Miquel-Angel Galindo & Niroomand, Farhang, 1998. "Exchange Rate Sensitivity of the Demand for Money in Spain," Applied Economics, Taylor and Francis Journals, vol. 30(5), pages 607-12, May. [Downloadable!] (restricted)
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