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

Nicholas Apergis

    Research output: Contribution to journalArticlepeer-review

    4 Citations (Scopus)

    Abstract

    Conventionally, the money demand function is estimated using a linear regression of the logarithm of money demand on a number of variables. In this article, we aim to estimate the long-run properties of money demand specification for a number of East Asian economies and within a panel framework with the presence of structural breaks. Various country-specific coefficients are allowed to capture inter-country heterogeneities. Consistent with theoretical postulates, it is found that (a) the demand for money in the long-run positively responds to real income and inversely to the interest rate spread, inflation, the real effective exchange rate and the US real interest rate; (b) the long-run income elasticity is greater than unity; and (c) both the currency substitution and capital mobility hypotheses hold. The empirical findings in this article can provide useful policy guidelines to the East Asian countries’ central banks in their quest for price stability. If one of the primary objectives of these countries is to minimize price instability, they should avoid creating unnecessary disequilibrium in the money market, while the employment of cointegration with the presence of structural breaks clearly recommends to central banks to use the supply of money to attain price and macroeconomic stability.
    Original languageEnglish
    Pages (from-to)3276-3291
    JournalApplied Economics
    Volume47
    Issue number31
    DOIs
    Publication statusPublished - 2015

    Keywords

    • real demand for money
    • cointegration with structural breaks
    • E41
    • C33

    Fingerprint

    Dive into the research topics of 'Long-run estimates of money demand: new evidence from East Asian countries and the presence of structural breaks'. Together they form a unique fingerprint.

    Cite this