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Investigating Long-Run Demand for Broad Money in the Gulf Arab Countries

  • Syed Basher

    ()

    (Qatar Central Bank)

  • Stefano Fachin

    ()

    (Universita' di Roma "La Sapienza")

We estimate the long-run demand for broad money at the Gulf Cooperation Council area level (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)) and at single country level over the 1980-2009 period. Applying time series and panel econometric tests, we first document the existence of long-run equilibrium relationship for money demand – both nationally and regionally. The estimated income- and interest elasticities in Qatar, Saudi Arabia and the UAE provide a validation for the Baumol-Tobin version of the inventory analysis of the transactions demand for money; while income elasticities in the other GCC economies reflect portfolio demand more strongly than transaction demand with a generally lower interest rate (semi-)elasticities. We discuss how the movements in income velocity can reconcile the varying elasticities documented across the six countries. The different pooled estimators of the regional money demand produce estimated income elasticities in the neighborhood of unity, while interest rate elasticities tend to be smaller than -0.2.

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File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20126_Basher_Fachin.pdf
File Function: First version, 2012
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Paper provided by Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome in its series DSS Empirical Economics and Econometrics Working Papers Series with number 2012/6.

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Length: 29 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:sas:wpaper:20126
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  1. Di Iorio, Francesca & Fachin, Stefano, 2012. "A note on the estimation of long-run relationships in panel equations with cross-section linkages," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6, pages 1-18.
  2. Abbas Valadkhani, 2008. "Long- and Short-Run Determinants of the Demand for Money in the Asian-Pacific Countries: An Empirical Panel Investigation," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 77-90, May.
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  5. Elsamadisy, Elsayed Mousa & Alkhater, Khalid Rashid & Basher, Syed Abul, 2013. "Pre- versus Post-Crisis Central Banking in Qatar," MPRA Paper 45310, University Library of Munich, Germany.
  6. Nasri Harb, 2003. "Money Demand Function: A heterogeneous Panel Application," Economics Working Papers 03/04-01, Department of Economics, College of Business and Economics, UAE University.
  7. Westerlund, Joakim & Basher, Syed A., 2008. "Mixed signals among tests for panel cointegration," Economic Modelling, Elsevier, vol. 25(1), pages 128-136, January.
  8. Masao Ogaki & Nelson Mark & Donggyu Sul, 2004. "Dynamic Seemingly Unrelated Cointegrating Regression," Working Papers 04-02, Ohio State University, Department of Economics.
  9. Basher, Syed Abul & Elsamadisy, Elsayed Mousa, 2010. "Country Heterogeneity and Long-Run Determinants of Inflation in the Gulf Arab States," MPRA Paper 27348, University Library of Munich, Germany.
  10. Di Iorio, Francesca & Fachin, Stefano, 2012. "A simple sieve bootstrap range test for poolability in dependent cointegrated panels," Economics Letters, Elsevier, vol. 116(2), pages 154-156.
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  14. Tas, Bedri Kamil Onur & Togay, Selahattin, 2012. "A direct test of the endogeneity of money: Implications for Gulf Cooperation Council (GCC) countries," Economic Modelling, Elsevier, vol. 29(3), pages 577-585.
  15. Darrat, Ali F. & Al-Sowaidi, Saif S., 2009. "Financial progress and the stability of long-run money demand: Implications for the conduct of monetary policy in emerging economies," Review of Financial Economics, Elsevier, vol. 18(3), pages 124-131, August.
  16. Ananthakrishnan Prasad & Raphael A. Espinoza, 2012. "Monetary Policy Transmission in the GCC Countries," IMF Working Papers 12/132, International Monetary Fund.
  17. Shigeyuki Hamori, 2008. "Empirical Analysis of the Money Demand Function in Sub-Saharan Africa," Economics Bulletin, AccessEcon, vol. 15(4), pages 1-15.
  18. Peter Pedroni, 2001. "Purchasing Power Parity Tests in Cointegrated Panels," Department of Economics Working Papers 2001-01, Department of Economics, Williams College.
  19. Paresh Narayan & Seema Narayan & Vinod Mishra, 2009. "Estimating money demand functions for South Asian countries," Empirical Economics, Springer, vol. 36(3), pages 685-696, June.
  20. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  21. Zaidi, Iqbal, 1990. "Monetary coordination among the gulf cooperation council countries," World Development, Elsevier, vol. 18(5), pages 759-768, May.
  22. Di Iorio, Francesca & Fachin, Stefano, 2010. "A Panel Cointegration study of the long-run relationship between Savings and Investments in the OECD economies, 1970-2007," MPRA Paper 25873, University Library of Munich, Germany.
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