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Does India have a stable demand for money function after reforms? A macroeconometric analysis

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  • Nitin, Arora

    () (Panjab University, India;)

  • Asghar, OsatiEraghi

    () (Islamic Azad University, Arak, Iran; Panjab University, India)

Abstract

The present study analyzes the stability of the demand for money function in India over the period 1991:M4–2014:M9 using co-integration and Vector Error Correction Mechanism framework. From analysis, it has been observed that there exists a stable demand for money function in India during the post-reforms period, i.e. a long-run relationship does exist between demand for real balances, national output (Y), rate of interest (R) and exchange rate (ER). Two variables Y and ER have been observed to be affecting demand for real balances positively, while the observed effect of M2 is negative. Thus, the signs and magnitudes of all three regressors have been observed according to a-priori information without any paradoxical situation.

Suggested Citation

  • Nitin, Arora & Asghar, OsatiEraghi, 2016. "Does India have a stable demand for money function after reforms? A macroeconometric analysis," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 44, pages 25-37.
  • Handle: RePEc:ris:apltrx:0302
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    References listed on IDEAS

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    Keywords

    money demand function; stability of demand for money function; co-integration; vector error correction mechanism.;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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