Economic and Monetary Uncertainty and the Demand for Money in China

Australian Economic Papers

2014

Self Cite

In 1984 Nobel Lauriat Milton Friedman claimed that the decline in velocity of money or an increase in the demand for money was due to volatility of money supply. Another study argued that if monetary volatility could impact the demand for money, so can output volatility (as a measure of economic uncertainty). Both measures of uncertainty can cause people to reallocate their assets between cash and real assets that are less risky. If public become more cautious about the future, they will hold more cash today. However, if they chose to hedge against uncertain prices, they may hold more real assets and less cash. These two hypotheses are tested for Asian countries using bounds testing approach. While both measures are found to have short-run significant effects on the demand for money in almost all countries, the short-run effects last into the long run in half of the countries. Furthermore, we find positive and negative effects of both measures which are in line with previous research related to a few developed countries.

“…To that end, we follow Bahmani‐Oskooee et al . () and adopt the following long‐run specification:

L n M_{t} = a + b L n Y_{t} + c L n r_{t} + d L n (P_{t} / P_{t - 1}) + e L n E X_{t} + f L n V Y_{t} + g L n V M_{t} + ε_{t}

…”

Section: The Money Demand Function and Estimation Methodsmentioning

confidence: 99%

“…The Chinese demand for money and its sensitivity to economic uncertainty and monetary uncertainty was considered by Bahmani‐Oskooee et al . () who found that both uncertainty measures have short‐run but not long‐run effects on the demand for money in China. Finally, Bahmani‐Oskooee et al .…”

Section: Introductionmentioning

confidence: 99%

Economic Uncertainty, Monetary Uncertainty, and the Demand for Money: Evidence From Asian Countries

Australian Economic Papers

2014

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“…The strength of each effect (wealth versus substitution) is a matter of empirical analysis and in general is country specific, as evidenced from the literature. Examples of studies that have included the exchange rate in their specification of the demand for money are: Arango and Nadiri (1981) for Canada, Germany, UK., the US., Domowitz and Elbadawi (1987) for Sudan, Marquez (1987) for Venezuela, Bahmani-Oskooee and Malixi (1991) for 13 developing countries, Karfakis (1991) for Greece, McNown and Wallace (1992) for the U.S., Bahmani-Oskooee (1996) for Iran, Bahmani-Oskooee and Techaratanachai (2001) for Thailand, Civcir (2003) and Bahmani-Oskooee and Karacal (2006) for Turkey, Harb (2004) for six oil producing countries, Bahmani-Oskooee and Gelan (2009) for African countries, Bahmani-Oskooee and Xi (2011) for Australia, Bahmani-Oskooee et al (2012) for China, and Bahmani-Oskooee et al (2013) for emerging countries.…”

Section: Introductionmentioning

confidence: 99%

Do Exchange Rate Changes have Symmetric or Asymmetric Effects on the Demand for Money in Korea?

Baek²

2017

REA

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Previous studies that included the exchange rate in the Korean demand for money assumed that the effects of the exchange rate changes are symmetric and adjustment process is linear. They found no significant effects. In this paper we apply Shin et al.’s (2014) Nonlinear ARDL approach to cointegration and error-correction modeling and test the symmetric versus asymmetric effects of exchange rate changes on the demand for money in Korea. Using quarterly data over the period 1973-2014, the results show that indeed the effects are asymmetric in the short run. In the long run, however, although the effects are symmetric but both won depreciation and won appreciation have significantly negative effects on the demand for money, supporting the wealth effects argument.

“…Greece, Bahmani-Oskooee (1996) for Iran, Civcir (2003) for Turkey, Harb (2004) for six oil producing countries, and Bahmani-Oskooee et al (2012) for China.…”

Section: Introductionmentioning

confidence: 99%

Global Financial Crisis of 2008, Asymmetric Effects of Exchange Rate Changes, and Stability of the Demand for Money in Japan

2016

J. Rev. Global Econ.

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We wonder if Global Financial Crisis of 2008 affected stability of the demand for money in Japan. In testing this hypothesis we deviate from previous studies which either excluded the exchange rate from money demand function in Japan or have not been able to find any significant relation between the exchange rate and the demand for money. While we address stability of the demand for money, we show that failure to find a cointegrating relation or significant effects could be due to assuming a linear model in which exchange rate changes have symmetric effects. Once we consider a nonlinear ARDL approach of Shin et al.'s (2014), we show that not only variables in the money demand are cointegrated but exchange rate changes have asymmetric effects. In the long run, while appreciation of yen has significantly positive effect on the demand for money in Japan, depreciation does not. We also find a stable money demand which was not affected by 2008 financial crisis.