How Stable is the Demand for Money in Malaysia? New Empirical Evidence from Rolling Regression
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.
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Volume (Year): VII (2009)
Issue (Month): 3-4 (August)
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