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Demand for Money in India: An ARDL Approach

In: Current Issues in the Economy and Finance of India

Author

Listed:
  • Abdul Rishad

    (Central University of Himachal Pradesh)

  • Akhil Sharma

    (Central University of Himachal Pradesh)

  • Sanjeev Gupta

    (Central University of Himachal Pradesh)

Abstract

Understanding the stability of monetary aggregates and different determinantsDeterminants of money demandDemand in an economy is necessary for the planning and implementation of monetary policyMonetary policy because of the sensitivity and importance of money in an economy. This study empirically examines the broad moneyBroad money (M3) money demandDemand function in Indian economy by using a robust Autoregressive Distributed Lag (ARDLARDL ) model suggested by Pesaran et al. (J Appl Econom 16:289–326, 2001). It uses annual data on GDP per-capita, exchange rate and inflationInflation for a period of 41 years from 1975 onwards. The study found a strong co-integrationCo-Integration relation between M3 and its determinantsDeterminants for long-run but only the inflationInflation was co-integrated for short-run. It further found that the GDP elasticity & inflationInflation elasticity of money was positive and the elasticity of exchange rate is negative. The result of CUSUMCUSUM and CUSUMQCUSUMQ confirm a stable money demandDemand in Indian economy and using M3 as the policy yardstick is effective for monetary policyMonetary policy decisions.

Suggested Citation

  • Abdul Rishad & Akhil Sharma & Sanjeev Gupta, 2018. "Demand for Money in India: An ARDL Approach," Springer Proceedings in Business and Economics, in: Aswini Kumar Mishra & Vairam Arunachalam & Debasis Patnaik (ed.), Current Issues in the Economy and Finance of India, chapter 0, pages 27-42, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-99555-7_2
    DOI: 10.1007/978-3-319-99555-7_2
    as

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