Stability of demand for money function in Nepal: A cointegration and error correction modeling approach
This paper examines the long run and short run demand for money functions and their stability issues for Nepal using the annual data set of 1975-2009 by using the recently developed ARDL modeling to cointegration popularized by Pesaran and Shin (1999). The bounds test shows that there exists the long run cointgrating relationship among demand for real money balances, real GDP and interest rate in case of both narrow and broad monetary aggregates. Further, the CUSUM and CUSUMSQ test reveal that both the long run narrow and broad money demand functions are stable. The results show that demand for real money balance in Nepal is a stable and predictable function of a few variables and the central bank can rely on the monetary aggregates as intermediate targets for achieving the broad economic objectives.
|Date of creation:||11 Apr 2011|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Michael J. Hamburger, 1966. "The Demand for Money by Households, Money Substitutes, and Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 74, pages 600-600.
- Omer, Muhammad, 2009.
"Stability of money demand function in Pakistan,"
35306, University Library of Munich, Germany.
- Muhammad Omer, 2010. "Stability of Money Demand Function in Pakistan," SBP Working Paper Series 36, State Bank of Pakistan, Research Department.
- Samreth, Sovannroeun, 2008. "Estimating Money Demand Function in Cambodia: ARDL Approach," MPRA Paper 16274, University Library of Munich, Germany, revised Jun 2009.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
- Robert Simmons, 1992. "An Error-correction Approach to Demand for Money in Five African Developing Countries," Journal of Economic Studies, Emerald Group Publishing, vol. 19(1), pages 29-47, January.
- Akinlo, A. Enisan, 2006. "The stability of money demand in Nigeria: An autoregressive distributed lag approach," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 445-452, May.
- Arango, Sebastian & Ishaq Nadiri, M., 1981. "Demand for money in open economies," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 69-83.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, April.
- Yash P. Mehra, 1991. "An error-correction model of U.S. M2 demand," Economic Review, Federal Reserve Bank of Richmond, issue May, pages 3-12.
- repec:nrb:journl:v:23:y:2011:i:1:p:4 is not listed on IDEAS
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- den Butter, F. A. G. & Fase, M. M. G., 1981. "The demand for money in EEC countries," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 201-230. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:41404. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.