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Currency demand stability in the presence of seasonality and endogenous financial innovation: Evidence from India

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  • Singh, Sunny Kumar

Abstract

Based on the money-in-the-utility function, this paper intends to examine the stability of the currency demand function for India with real private consumption expenditure, tax-GDP ratio and deposit rate as explanatory variables by applying the seasonal cointegration technique developed by EGHL (1993) and HEGY (1990) for the period 1996:1 to 2014:4. The empirical findings show that there is absence of long-run cointegrationg relationship among the variables at the zero and annual frequency, however, there is evidence of a relationship among the variables at the biannual frequency. Moreover, the time-varying coefficient of deposit rate elasticity, used to test the Gurley-Shaw hypothesis, suggests that innovations in financial markets, especially improvements in the payment technology, raises the deposit rate elasticity, beginning from 2010 onward.

Suggested Citation

  • Singh, Sunny Kumar, 2016. "Currency demand stability in the presence of seasonality and endogenous financial innovation: Evidence from India," MPRA Paper 71552, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:71552
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    References listed on IDEAS

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    More about this item

    Keywords

    Currency demand; Seasonal cointegration; Seasonal error correction; Financial innovation; State-space Modeling;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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