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Policy uncertainty and the demand for money in the United Kingdom: Are the effects asymmetric?

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  • Bahmani-Oskooee, Mohsen
  • Maki Nayeri, Majid

Abstract

Since the publication of Baker et al. (2016) work on measuring economic policy uncertainty, its impact on other macro variables has received renewed attention and its impact on the demand for money is no exception. A previous study that assessed its impact on the demand for money in the U.K. found short-run but not long-run effects. We suspect that this could be due to assuming the effects of policy uncertainty to be symmetric. Once we assess its asymmetric effects by introducing the nonlinear adjustment of the policy uncertainty measure, we show that, both increased and decreased uncertainty, induce the public in the U.K. to hold more cash in the long run, a clear sign of an asymmetric response.

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  • Bahmani-Oskooee, Mohsen & Maki Nayeri, Majid, 2020. "Policy uncertainty and the demand for money in the United Kingdom: Are the effects asymmetric?," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 76-84.
    • Handle: RePEc:eee:ecanpo:v:66:y:2020:i:c:p:76-84
    DOI: 10.1016/j.eap.2020.02.005
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    Cited by:

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    2. Batabyal, Sourav & Killins, Robert, 2021. "Economic policy uncertainty and stock market returns: Evidence from Canada," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    3. Hossain, Akhand Akhtar & Arwatchanakarn, Popkarn, 2020. "The effect of economic uncertainty on narrow money demand and its stability in New Zealand: An empirical investigation," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 88-100.

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    More about this item

    Keywords

    The U.K.; Money demand; Policy uncertainty; Asymmetry; Nonlinear ARDL;
    All these keywords.

    JEL classification:

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

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