IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/65560.html
   My bibliography  Save this paper

Demand for money and exchange rate: Evidence for wealth effect in India

Author

Listed:
  • I, Sahadudheen

Abstract

External factors such as variations in exchange rates should, to some extent, affect the composition of optimal money holdings. It was Robert Mundell who proposed the idea that demand for money could depend on the exchange rate in addition to the income and interest rate. Changes in exchange rate may have two effects on the demand for domestic currency, wealth effect and currency substitution effect. The main objective of the paper is to examine the effects of exchange rate on domestic demand for money in India covering the period of 1998Q1 to 2009Q4. The statistical and time series properties of each and every variable are examined using the conventional unit root test and utilizes Johansen-juselius cointegration analysis to test for the existence of a long run relationship between the determinants and the error correction from the long rum money demand is then used. The results shows a little evidence for the basic contention that exchange rates have a significant influence on money demand and increase in exchange rate not results in reduced domestic demand for money in India.

Suggested Citation

  • I, Sahadudheen, 2012. "Demand for money and exchange rate: Evidence for wealth effect in India," MPRA Paper 65560, University Library of Munich, Germany, revised 2012.
    • Handle: RePEc:pra:mprapa:65560
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/65560/1/MPRA_paper_65560.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(1), pages 281-282, January.
    2. Akhtar Hossain, 1994. "The Search for a Stable Money Demand Function for Pakistan: An Application of the Method of Cointegration," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 969-983.
    3. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(2), pages 500-504, April.
    4. Anonymous, 1963. "International Monetary Fund," International Organization, Cambridge University Press, vol. 17(4), pages 976-977, October.
    5. McNown, Robert & Wallace, Myles S., 1992. "Cointegration tests of a long-run relation between money demand and the effective exchange rate," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 107-114, February.
    6. Arango, Sebastian & Ishaq Nadiri, M., 1981. "Demand for money in open economies," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 69-83.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adil, Masudul Hasan & Haider, Salman & Hatekar, Neeraj, 2018. "The empirical verification of money demand in case of India: Post-reform era," MPRA Paper 87148, University Library of Munich, Germany, revised 07 Jun 2018.
    2. Nitin, Arora & Asghar, OsatiEraghi, 2016. "Does India have a stable demand for money function after reforms? A macroeconometric analysis," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 44, pages 25-37.
    3. Yannick Roussel & Amjad Ali & Marc Audi, 2021. "Measuring The Money Demand In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 27-41, March.
    4. Lee-Chea Hiew & Chin-Hong Puah & Mohammad Affendy Arip & Mei-Teing Chong, 2019. "Role of Advertising Expenditure as an Influential Non-traditional Regressor in Russia¡¯s Money Demand Specification," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 232-240, October.
    5. La Saidi & Pasrun Adam & Rostin & Zainuddin Saenong & Muh. Yani Balaka & Gamsir & Asmuddin & Salwiah, 2017. "The Effect of Stock Prices and Exchange Rates on Economic Growth in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 527-533.
    6. Masudul Hasan Adil & Salman Haider & Neeraj R. Hatekar, 2020. "Empirical Assessment of Money Demand Stability Under India’s Open Economy: Non-linear ARDL Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 891-909, December.
    7. International Monetary Fund, 2013. "Algeria: Selected Issues Paper," IMF Staff Country Reports 2013/048, International Monetary Fund.
    8. Hassan, Shahid & Ali, Umbreen & Dawood, Mamoon, 2016. "Measuring Money Demand Function in Pakistan," MPRA Paper 75496, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manamba EPAPHRA, 2017. "An Econometric Analysis of Demand for Money and its Stability in Tanzania," Turkish Economic Review, KSP Journals, vol. 4(2), pages 167-192, June.
    2. repec:erc:cypepr:v:7:y:2014:i:2:p:23-51 is not listed on IDEAS
    3. Vinayagathasan, Thanabalasingam, 2013. "Inflation and economic growth: A dynamic panel threshold analysis for Asian economies," Journal of Asian Economics, Elsevier, vol. 26(C), pages 31-41.
    4. Anthony Makin & Wei Zhang & Grant Scobie, 2009. "The contribution of foreign borrowing to the New Zealand economy," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(3), pages 263-278.
    5. Ahmet Aysan & Marie-Ange Véganzonès –Varoudakis & Zeynep Ersoy, 2007. "What Types of Perceived Governance Indicators Matter the Most for Private Investment in Middle East and North Africa," Economics Bulletin, AccessEcon, vol. 5(8), pages 1-16.
    6. Ariel BUIRA, 2003. "An Analysis Of Imf Conditionality," G-24 Discussion Papers 22, United Nations Conference on Trade and Development.
    7. Jana Marková, 2010. "Reform of the International Monetary Fund Is Necessary [Reforma Mezinárodního měnového fondu je nevyhnutelná]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2010(3), pages 6-18.
    8. Guillaume, Dominique M. & Stasavage, David, 2000. "Improving Policy Credibility: Is There a Case for African Monetary Unions?," World Development, Elsevier, vol. 28(8), pages 1391-1407, August.
    9. Jaganath Behera & Alok Kumar Mishra, 2017. "The Recent Inflation Crisis and Long-run Economic Growth in India: An Empirical Survey of Threshold Level of Inflation," South Asian Journal of Macroeconomics and Public Finance, , vol. 6(1), pages 105-132, June.
    10. Filip Novokmet & Thomas Piketty & Gabriel Zucman, 2017. "Appendix to "From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016"," World Inequality Lab Working Papers halshs-02794397, HAL.
    11. Madhu Sehrawat & A. K. Giri, 2015. "Re-examining the Threshold Effects in Inflation–Growth Nexus: Evidence from India," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(2), pages 57-67, Fabruary.
    12. Steib, Steve B., 1972. "The Euro-dollar market as a source of United States bank liquidity," ISU General Staff Papers 197201010800006277, Iowa State University, Department of Economics.
    13. Adama Messanh COMBEY, 2016. "The Main Determinants of Private Investments in the WAEMU Zone: The Dynamic Approach," Journal of Economics and Political Economy, KSP Journals, vol. 3(4), pages 731-743, December.
    14. Gunjal, Kisan R., 1985. "The Effects Of Trade Promotion On Canadian Agricultural Exports," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 14(2), pages 1-10, October.
    15. M. Polasek, 1971. "The IMF Special Drawing Rights and the Currency Par‐Value System," The Economic Record, The Economic Society of Australia, vol. 47(2), pages 203-216, June.
    16. 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.
    17. Ingrid H. Rima, 2010. "The Political Economy of the Undervalued Renminbi," DETU Working Papers 1012, Department of Economics, Temple University.
    18. Cooray, Arusha, 2008. "A Model of Inflation for Sri Lanka," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 4(01-2), pages 1-10.
    19. repec:ebl:ecbull:v:5:y:2007:i:8:p:1-16 is not listed on IDEAS
    20. O'Connell, Arturo, 2001. "The return of "vulnerability" and Raul Prebisch's early thinking on the "Argentine business cycle"," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    21. Bernard H Casey & Panayiotis Yiallouros, 2013. "The Slow Growth and Sudden Demise of Supplementary Pension," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 7(2), pages 25-51, December.
    22. Jamal Bouoiyour & Refk Selmi, 2014. "Commodity price uncertainty and manufactured exports in Morocco and Tunisia: Some insights from a novel GARCH model," Economics Bulletin, AccessEcon, vol. 34(1), pages 220-233.

    More about this item

    Keywords

    Exchange rate; demand for money; Cointegration; substitution Effect and Wealth Effect;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:65560. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.