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Money demand amid financial sector developments in Malaysia

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  • Eu Chye Tan

Abstract

Both long and short run real money demand functions of Malaysia with money variously defined as M0, M1 and M2 have been estimated using the Johansen cointegration technique and the general-to-specific approach respectively. The period under review is 1973Q1-1991Q4. While liberalization and innovation in the Malaysian financial system have not ruled out the existence of stable long run money demand relationships as attested to by the presence of cointegrating vectors, they have rendered short run relationships unstable. Hence, it may not be appropriate for one to conclude that monetary policy efficacies have been sacrosanct to the financial liberalization and innovation process on the basis of cointegrating relationships. This is especially true as monetary policy is essentially a short run stabilization policy aimed at ironing out undue macroeconomic fluctuations. This prompted us to re-estimate short run money demand functions over more recent periods in order to boost the policy relevance of the estimated parameters.

Suggested Citation

  • Eu Chye Tan, 1997. "Money demand amid financial sector developments in Malaysia," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1201-1215.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:9:p:1201-1215
    DOI: 10.1080/00036849700000011
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    6. Michaël GOUJON & Sylviane GUILLAUMONT JEANNENEY & Christopher ADAM, 2002. "Currency substitution and the transactions demand for money in Vietnam," Working Papers 200228, CERDI.
    7. Muhd-Zulkhibri & A. Majid, 2005. "Modelling the Stability of Money Demand in Small Open Economy: The Case of Malaysia," The IUP Journal of Applied Economics, IUP Publications, vol. 0(2), pages 7-23, March.
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    10. James, Gregory A., 2005. "Money demand and financial liberalization in Indonesia," Journal of Asian Economics, Elsevier, vol. 16(5), pages 817-829, October.
    11. Mohsen Bahmani-Oskooee & Dan Xi & Sahar Bahmani, 2019. "More evidence on the asymmetric effects of exchange rate changes on the demand for money: evidence from Asian," Applied Economics Letters, Taylor & Francis Journals, vol. 26(6), pages 485-495, March.
    12. Sriram, Subramanian S., 2002. "Determinants and stability of demand for M2 in Malaysia," Journal of Asian Economics, Elsevier, vol. 13(3), pages 337-356.
    13. Lee Chin & Muzafar Shah Habibullah & M. Azali, 2009. "Tests of different monetary aggregates for the monetary models of the exchange rate in five ASEAN countries," Applied Economics, Taylor & Francis Journals, vol. 41(14), pages 1771-1783.
    14. Dahalan, Jauhari & Sharma, Subhash C. & Sylwester, Kevin, 2005. "Divisia monetary aggregates and money demand for Malaysia," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1137-1153, January.
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    16. Bahmani-Oskooee, Mohsen & Tanku, Altin, 2006. "Black market exchange rate, currency substitution and the demand for money in LDCs," Economic Systems, Elsevier, vol. 30(3), pages 249-263, October.
    17. Mohsen Bahmani-Oskooee & Hafez Rehman, 2005. "Stability of the money demand function in Asian developing countries," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 773-792.
    18. Baharumshah, Ahmad Zubaidi & M. Masih, A. Mansur & Azali, M., 2002. "The stock market and the ringgit exchange rate: a note," Japan and the World Economy, Elsevier, vol. 14(4), pages 471-486, December.
    19. Michaël GOUJON & Sylviane GUILLAUMONT JEANNENEY & Christopher ADAM, 2003. "Currency substitution and the transactions demand for money," Working Papers 200304, CERDI.
    20. Dahalan, Jauhari & Sharma, Subhash C. & Sylwester, Kevin, 2007. "Scale variable specification in a money demand function for Malaysia," Journal of Asian Economics, Elsevier, vol. 18(6), pages 867-882, December.
    21. karim, mohd & guan, Tang, 2004. "Stock Prices, Foreign Opportunity Cost, and Money Demand in Malaysia: A Cointegration and Error Correction Model Approach," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 38, pages 29-62.
    22. Hussin Abdullah & Shehu El-Rasheed & Hafizah Hammad Ahmad Khan, 2022. "Asymmetric Impact of Exchange Rate Changes on Money Demand in Malaysia," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 16(3), September.

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