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How Stable is the Demand for Money in Malaysia? New Empirical Evidence from Rolling Regression

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  • Chor Foon Tang

Abstract

The main objective of this paper is to empirically reinvestigate the long-run Malaysian M2 money demand function and its stability over the period from 1971:1 to 2007:3. The Johansen-Juselius cointegration test in association with the modified Pantula’s principle is employed to examine the long-run equilibrium relationship between M2 money demand and its determinants, such as real income, inflation rate and exchange rate. Apart from this, the rolling regression procedure is also used to examine the stability of M2 money demand function. The Johansen-Juselius test result suggests that the variables are cointegrated. However, the rolling regression procedure indicates that the Malaysian M2 money demand function was not stable over the analysis period owing to a series of shocks in the Malaysian monetary policy environment.

Suggested Citation

  • Chor Foon Tang, 2009. "How Stable is the Demand for Money in Malaysia? New Empirical Evidence from Rolling Regression," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3-4), pages 85-100, August.
  • Handle: RePEc:icf:icfjmo:v:07:y:2009:i:3-4:p:85-100
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    Cited by:

    1. Chor Foon Tang, 2011. "An exploration of dynamic relationship between tourist arrivals, inflation, unemployment and crime rates in Malaysia," International Journal of Social Economics, Emerald Group Publishing, vol. 38(1), pages 50-69, January.
    2. Tang, Chor Foon, 2011. "Tourism, real output and real effective exchange rate in Malaysia: a view from rolling sub-samples," MPRA Paper 29379, University Library of Munich, Germany.

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