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On the stability of money demand: evidence from Madagascar

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  • Randrianarisoa, Radoniaina

Abstract

This paper seeks to determine the existence of a stable demand for money relation for the case of Madagascar. We use an Engle-Granger error correction model to be able to demonstrate that in the long-run, the demand for money is negatively explained by the opportunity cost and positively by real income and the proxy for financial innovation. The latter, when taken into account, produces a less stable demand than when real income and opportunity cost are only used. Hence, the real demand for money in Madagascar is considered as stable, but fragile. This situation justified the migration to a more forward-looking monetary policy regime.

Suggested Citation

  • Randrianarisoa, Radoniaina, 2024. "On the stability of money demand: evidence from Madagascar," MPRA Paper 121170, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121170
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    References listed on IDEAS

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    1. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
    2. Farhan Abdi Omar & Abdishakur Mohamed Hussein, 2020. "The Stability of Money Demand Function: Evidence from South Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 16-22.
    3. Driscoll, M J & Ford, J L, 1980. "The Stability of the Demand for Money Function and the Predictability of the Effects of Monetary Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 867-884, December.
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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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