DETERMINING FACTOR FOR MALAYSIAN MONEY DEMAND FUNCTION

Muhammad Ahmad Mazher, Jauhari Dahlan

Abstract

The reason for our study was to determine the factors that influence the role of money demand in the Malaysian economy. We implicit various economic factors comprise real CPI, real interest rate, financial innovation, and real GDP and analyzed through implying ARDL Bound test for short-run and the long-run period over 1970-2018 time-series data. Based on empirical results, we revealed that over the short-run period, financial innovation having positive and significant while real GDP has a negative and significant relationship with real money demand function in Malaysia. The official real exchange rate has a positive and significant relationship with real money demand, with an increase of one unit in the real exchange rate, increasing the money demand function by 0.97 in the long term. More, negative and significant relationships revealed among real GDP and real money demand function which direct that by increase 1% change in real GDP direct to decrease in real money demand by 0.6395 in the Malaysian economy and finally real money demand predicted 13.0796 when all independent variable is zero in the Malaysian economy.

Full Text:

PDF

References

Achsani, N. A. (2010). Stability of Money Demand in an Emerging Market Economy: An Error Correction and ARDL Model for Indonesia. Research Journal of Internatıonal Studıes, 13, 9.

Ahmad, E., & Munirs, M. (2000). An Analysis of Money Demand in Pakistan. Pakistan Economic and Social Review, 38(01), 20.

Anwar, S., & Asghar, N. (2012). Is Demand for Money Stable in Pakistan? Pakistan Economic and Social Review, 50(01), 1–22.

Arango, S., & Nadiri, MI. (1981). Demand for Money in Open Economies. J. Mon. Econ, 7, 69–83.

Bahmani‐Oskooee, M., & Tanku, A. (2006). Black Market Exchange Rate, Currency Substitution and the Demand for Money in Ldcs (SSRN Scholarly Paper ID 938453). Social Science Research Network. https://papers.ssrn.com/abstract=938453

Bank Negara Malaysia. (2011). Bank Negara Malaysia Annual Report 2011 | Bank Negara Malaysia | Central Bank of Malaysia. https://www.bnm.gov.my/index.php?ch=en_publication&pg=en_ar&ac=17

Bara, A., & Mudzingiri, C. (2016). Financial innovation and economic growth: Evidence from Zimbabwe. Investment Management and Financial Innovations, 13(2), 65–75. https://doi.org/10.21511/imfi.13(2).2016.07

Baumol, W. J. (1952). The transaction s Demand for Cash: An Inventory Approach. Quaterly Journal of Economics, 66, 545–556.

Bitrus, Y. P. (2011). The determinants of the demand for money in developed and developing countries. Journal of Economics and International Finance, 03(15), 08.

Chen, B. (1997). Long-Run Money Demand and Inflation in China. Journal of Macroeconomics, 19(3), 609–617. https://doi.org/10.1016/S0164-0704(97)00032-3

Choudhry, T. (1995). High inflation rates and the long-run money demand function: Evidence from cointegration tests. Journal of Macroeconomics, 17(1), 77–91. https://doi.org/10.1016/0164-0704(95)80004-2

Darrat, A. F. (1985). The demand for money in a developing economy: The case of Kenya. World Development, 13(10–11), 1163–1170. https://doi.org/10.1016/0305-750X(85)90034-8

GHaffar, A., Roslan, & Habibullah, M. S. (1987). Price expectations and the demand for money in Malaysia. Journal Ekonomi Malaysia, 15, 2–35.

Hoffman, D. L., Rasche, R. H., & Tieslau, M. A. (1995). The stability of long-run money demand in five industrial countries. Journal of Monetary Economics, 35(2), 317–339. https://doi.org/10.1016/0304-3932(95)01189-U

Kombo, J. N., & Nyangoro, O. (2019). Empirical Analysis of Real Money Demand Function in Kenya. Journal of Emerging Issues in Economics, Finance and Banking, 8(1), 17.

Narayan, P. K., Narayan, S., & Mishra, V. (2009). Estimating money demand functions for South Asian countries. Empirical Economics, 36(3), 685–696. https://doi.org/10.1007/s00181-008-0219-9

Noman, A. H. Md., Gee, C. S., & Isa, C. R. (2017). Does competition improve financial stability of the banking sector in ASEAN countries? An empirical analysis. PLoS ONE, 12(5). https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0176546

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616

Rahim, A. (1986). The demand for money in Malaysia. Analisis, 1, 27–40.

Semudram, M. (1981). The demand for money in the Malaysian economy. Malayan Economic Review, 26(2), 53–63.

Sichei, M. M., & Kamau, A. W. (2012). Demand For Money: Implications for The Conduct of Monetary Policy in Kenya. International Journal of Economics and Finance, 4(8), 10.

Skrabic, B., & Tomic-Plazibat, N. (2009). Evidence of the Long-run Equilibrium between Money Demand Determinants in Croatia. World Academy of Science, Engineering and Technology, 49, 4.

Tobin, J. (1956). The Interest Elasticity of the Transactions Demand for Cash. Review of Economics and Statistics, 38, 6.

Treichel, V. (1997). Broad Money Demand and Monetary Policy in Tunisia. International Monetary Fund Working Paper, WP/97(22).

Tseng, W., & Corker, R. (1991). Financial liberalisation, money demand and monetary policy in Asian countries. International Monetary Fund, Occasional Paper, No. 84.

Wihardja, M. M. (2013). Financial Integration Challenges in ASEAN beyond 2015. In Working Papers (DP-2013-27; Working Papers). Economic Research Institute for ASEAN and East Asia (ERIA). https://ideas.repec.org/p/era/wpaper/dp-2013-27.html

Yu, H., & Gan, P.-T. (2009). An Empirical Analysis of the Money Demand Function in ASEAN-5. International Research Journal of Finance and Economics, 33, 11.

Refbacks

  • There are currently no refbacks.