Register  |  Login  |  Inquiries  |  Sitemap |  
Advanced Search
Journal of Economic Integration 2020 March;35(1) :111-128.
DOI: https://doi.org/10.11130/jei.2020.35.1.111
Stability of Money Demand Function in the SAARC Region: A Panel Co-Integration Approach

Rabindra Nepal 1 and Nirash Paija 2

1University of Wollongong, Australia
2Tribhuvan University, Nepal
Corresponding Author: Rabindra Nepal ,Tel: 0242214720, Email: rnepal@uow.edu.au
Copyright ©2020 Journal of Economic Integration
ABSTRACT
This study explores the causality relationships between money demand, real income, price, and interest rate by focusing on South Asia for the period between 1986 and 2017 using panel data econometrics. Our estimations based on panel auto-regressive distributed lag (ARDL) reveal a significant and positive long-run relationship between real income and money demand, while a negative relationship exists with interest rate and price. The panel vector error correction model causality results highlight a feedback relationship between money demand and real income, but a short-run unidirectional causality between price and interest rate and real income. We also discover long-run bidirectional causality among these variables. Our results indicate that the money demand function was stable in South Asian economies during the time period considered by this study. Therefore, the central bank of these countries can use money supply as an appropriate instrument to manage monetary policy to achieve overall price and macroeconomic stability.

JEL Classification
E41: Demand for Money
E51: Money Supply; Credit; Money Multipliers
E52: Monetary Policy
E42: Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Keywords: Money Demand | Panel ARDL | Granger Causality | Interest Rate.
Editorial Office
Center for Economic Integration, Sejong Institution, Sejong University, 209, Neungdong-Ro, Gwangjin-Gu,
Seoul, 05006, Korea
TEL : +82-2-3408-3338    FAX : +82-2-6935-2492   E-mail : jei@sejong.ac.kr
Browse Articles |  Current Issue |  For Authors and Reviewers |  About
Copyright© by Center for Economic Integration. All right reserved.      Developed in M2PI