The Demand for Money in Asia: Some Further Evidence

Abstract

This paper investigates empirically the impact of exchange rate changes on the money demand of seven Asian countries over the quarterly period, 1973 -2009. Estimates of the cointegrating relations are obtained using different estimators and the error-correction technique was used to obtain the estimates of the short-run dynamics. The major results show that increases in the exchange rate, exert a significant positive effect upon money demand in both the long-run and the short-run in each of the seven countries. Further, domestic interest rates are found to have significant negative effect on the demand for money. These effects may result in significant reallocation of resources by monetary authorities and market participants. Our results provide justifications for the monetary authorization to pay attention to broad money.

Long-run estimates of money demand: new evidence from East Asian countries and the presence of structural breaks

“…The results seem to be consistent with those provided by Cho and Miles (2000) for the case of Korea, Atchariyachanvanich (2002) for the cases of Korea, Malaysia, Philippines and Thailand, by Miyagawa and Morita (2004) for the case of Japan, by Inoue and Hamori (2008) for the case of India, by Wu (2009) for the case of China, by Arize and Nam (2012) for the cases of India, Korea, Malaysia, Philippines and Thailand, though those studies are not only on a time series basis, but also they follow a linear pattern of estimation. On a panel basis, they are also consistent with those by Valadkhani (2008) and Narayan et al (2009) for the case of number of Asian countries and by Hussain and Wijewwera (2013) for the cases of Hong Kong, India, Korea, Malaysia, Philippines, Singapore and Thailand, though these studies follow a linear functional pattern.…”

Money Demand in Korea: A Cointegration Analysis, 1973-2014

“…In another paper written with Shin, however, B-O finds a long-run equilibrium relationship among M2, income, interest rate, and exchange rate; but the money demand is found to be unstable using CUSUM and CUSUMSQ analysis (B-O and Shin, 2002). Using the Johansen method, Arize and Nam (2012) also find cointegration among the same variables for Korea, supporting an older study from Chung and Lee (1995) who find cointegration for M2, but not for M1. The implication of their study is also reinforced by Hwang (2002), who finds that the real money demand function can be measured most effectively using M2 and long-run interest rate.…”

An Investigation into the Interest Elasticity of Demand for Money in Developing Countries: A Panel Data Approach

“…For instance, the domestic interest rate is found to play a statistically significant role in explaining the long-run demand for M1 balances in some developing countries whilst the expected inflation rate shows a short-run impact in others (Simmons, 1992). Arize and Nam (2012) find the domestic interest rates to have significant negative effects on the demand for money for seven Asian countries. Econometric analysis of the demand for money from some earlier studies have found the interest rate to be statistically insignificant (Terriba, 1973, Pathak, 1981.…”