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Modeling Money Demand in India: Testing Weak, Strong & Super Exogeneity


  • Samarjit Das

    (Reserve bank of India)

  • Kumarjit Mandal

    (Reserve Bank of India)


This study investigates the following two issues. First, whether money demand function can be estimated by a partial model (conditional Model) in particular, by a single equation specification like the partial adjustement model and distributed lag model, or by a full system method (joint distribution) like Vector autoregressive (VAR) model. Different concepts of exogeneity have been exploited to see the exogeneity status of all the variables under consideration for extimation of the money demand function and it has been found that price and interest rates are weakly exogenous for money implying that the partial model (but not single equation) may be appropriate. It has also been found that only price and short term interest rates are super exogenous with respect to the parameters of the demand for M3 implying that the money demand function should not be inverted to get the price equation. Secondly, this paper also examines the stability of the long run money demand for M3 in India during the period 1981-1998. In spite of the large shocks due to financial liberalization during 1990, the long run demand for M3 is found to be stable. Here it is worthwhile to mention that stability of money demand is a prerequisite condition for super exogeneity

Suggested Citation

  • 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, vol. 35(1), pages 1-19, January.
  • Handle: RePEc:dse:indecr:v:35:y:2000:i:1:p:1-19

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    Cited by:

    1. Khalfaoui, Rabeh & Padhan, Hemachandra & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2020. "Understanding the time-frequency dynamics of money demand, oil prices and macroeconomic variables: The case of India," Resources Policy, Elsevier, vol. 68(C).
    2. Aggarwal, Sakshi, 2017. "Determinants of Money Demand for India in Presence of Structural Break: An Empirical Analysis," MPRA Paper 76967, University Library of Munich, Germany.
    3. Singh, Prakash & Pandey, Manoj K., 2009. "Structural break, stability and demand for money in India," MPRA Paper 15425, University Library of Munich, Germany.
    4. Masudul Hasan Adil & Salman Haider & Neeraj R. Hatekar, 2020. "Empirical Assessment of Money Demand Stability Under India’s Open Economy: Non-linear ARDL Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 891-909, December.
    5. Muhammad Arshad Khan & Muhammad Zabir Sajjid, 2005. "The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Approach," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 10(2), pages 87-99, Jul-Dec.
    6. Aggarwal, Sakshi, 2016. "Determinants of money demand for India in presence of structural break: An empirical analysis," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 12(4).
    7. Rup Singh & Saten Kumar, 2012. "Application of the alternative techniques to estimate demand for money in developing countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(2), pages 43-63, July-Dece.
    8. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611, February.
    9. Salman Haider & Aadil Ahmad Ganaie & Bandi Kamaiah, 2017. "Asymmetric exchange rate effect on money demand under open economy in case of India," Economics Bulletin, AccessEcon, vol. 37(1), pages 168-179.
    10. Sakshi Aggarwal, 2016. "Determinants of money demand for India in presence of structural break: An empirical analysis," Business and Economic Horizons (BEH), Prague Development Center, vol. 12(4), pages 173-177, December.
    11. Virmani, Vineet, 2004. "Operationalising Taylor-type Rules for the Indian Economy: Issues and Some Results (1992Q3 2001Q4)," IIMA Working Papers WP2004-07-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    12. I, Sahadudheen, 2012. "Long run demand for money in India: A co-integration approach," MPRA Paper 65563, University Library of Munich, Germany, revised 2012.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy


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