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An Empirical Analysis of Money Demand Function in Nepal

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  • Birendra Bahadur Budha

    () (Nepal Rastra Bank)

Abstract

This paper analyzes the money demand function for Nepal during the period of the FY 1997/98 to FY 2009/10 using annual data. The empirical results imply that the cointegration tests clearly show the existence of the long-run relationship between real money balances and its determinants, output and interest rate. The vector error correction model has pr oved the short-run relationship between the real money balances and its determinants. Furthermore, Dynamic OLS estimation of the money demand function indicate that the sign of coefficients of the output and interest rate were found to be consistent with the assumption of the money demand theories.

Suggested Citation

  • Birendra Bahadur Budha, 2011. "An Empirical Analysis of Money Demand Function in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 23(1), pages 54-70, April.
  • Handle: RePEc:nrb:journl:v:23:y:2011:i:1:p:54-70
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    References listed on IDEAS

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    1. Joseph Atta-Mensah, 2004. "Money Demand and Economic Uncertainty," Staff Working Papers 04-25, Bank of Canada.
    2. Youngsoo Bae & Vikas Kakkar & Masao Ogaki, 2004. "Money Demand in Japan and the Liquidity Trap," Working Papers 04-06, Ohio State University, Department of Economics.
    3. Mark Tuil & Louis Visscher, 2010. "Introduction," Chapters,in: New Trends in Financing Civil Litigation in Europe, chapter 1 Edward Elgar Publishing.
    4. Samreth, Sovannroeun, 2008. "Estimating Money Demand Function in Cambodia: ARDL Approach," MPRA Paper 16274, University Library of Munich, Germany, revised Jun 2009.
    5. Mohsen Bahmani-Oskooee & Yongqing Wang, 2007. "How Stable Is The Demand For Money In China?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 21-33, June.
    6. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    7. Shigeyuki Hamori, 2008. "Empirical Analysis of the Money Demand Function in Sub-Saharan Africa," Economics Bulletin, AccessEcon, vol. 15(4), pages 1-15.
    8. Alfred A. Haug, 2006. "Canadian Money Demand Functions: Cointegration-Rank Stability," Manchester School, University of Manchester, vol. 74(2), pages 214-230, March.
    9. N. Lesca, 2010. "Introduction," Post-Print halshs-00640602, HAL.
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    Cited by:

    1. repec:sae:globus:v:18:y:2017:i:4:p:811-824 is not listed on IDEAS
    2. Birendra Bahadur Budha, 2013. "Demand for Money in Nepal: An ARDL Bounds Testing Approach," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(1), pages 21-36, April.
    3. Bhatta, Siddha Raj, 2011. "Stability of demand for money function in Nepal: A cointegration and error correction modeling approach," MPRA Paper 41404, University Library of Munich, Germany.
    4. Birendra Bahadur Budha, 2012. "A Panel Data Analysis of Foreign Trade Determinants of Nepal: Gravity Model Approach," NRB Working Paper 12/2012, Nepal Rastra Bank, Research Department.
    5. Muhammad Ahad, 2017. "Financial Development and Money Demand Function: Cointegration, Causality and Variance Decomposition Analysis for Pakistan," Global Business Review, International Management Institute, vol. 18(4), pages 811-824, August.

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