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An Estimation of the Money Demand Function in Cambodia

Author

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  • Sovannroeun Samreth

    (Saitama University, Japan)

Abstract

In this paper, the money demand function in Cambodia is estimated. The function that incorporates the exchange rate is adopted as the estimation equation, taking into account the phenomenon of currency substitution. The autoregressive distributed lag approach to cointegration is used as the methodology, and data from the quarterly sample period between 2002Q1 and 2007Q4 are used for the estimation. The results indicate the existence of a long-run relationship among the variables considered in the money demand function. The cumulative sum as well as the cumulative sum of squares tests on the recursive residuals support the stability of the estimated function. Moreover, the long-run estimation results show that income and inflation are significant determinants of money demand in Cambodia; however, although the estimated coefficient of the exchange rate is negative, it is not statistically significant. This statistical insignificance may be due to the coexistence of the currency substitution effect and the wealth effect on domestic money demand in Cambodia when the exchange rate fluctuates. This study provides important information on the structure of money demand function in Cambodia and can serve as a foundation for further research.

Suggested Citation

  • Sovannroeun Samreth, 2015. "An Estimation of the Money Demand Function in Cambodia," Economics Bulletin, AccessEcon, vol. 35(4), pages 2625-2636.
    • Handle: RePEc:ebl:ecbull:eb-15-00462
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    More about this item

    Keywords

    Cambodia; Currency Substitution; Money Demand Function;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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