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The Stability of Money Demand Function: Evidence from South Africa

Author

Listed:
  • Farhan Abdi Omar

    (Department of Research and Development, Egalle Minds, Hargeisa, Somaliland,)

  • Abdishakur Mohamed Hussein

    (Faculty of Business and Economics, Beder International University, Hargeisa, Somaliland.)

Abstract

The main purpose of this paper is to assess whether the Money Demand Function is stable in South Africa by employing the Johansen co-integration and the Vector Error Correction Model (VECM). The results indicate unstable money demand function among its determinant including real income, interest rate, stock price, and real exchange rate. More importantly, the M3 has a significant long-run relationship among its determinant except the interest rate. Furthermore, the short term dynamics show that unidirectional causality runs from determinants to the broader money except interest rate and exchange rate. This paper provides crucial evidence for policy-makers to consider the importance of the stock market activity to avoid misspecification of the money demand function.

Suggested Citation

  • Farhan Abdi Omar & Abdishakur Mohamed Hussein, 2020. "The Stability of Money Demand Function: Evidence from South Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 16-22.
    • Handle: RePEc:eco:journ1:2020-05-3
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    References listed on IDEAS

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    Cited by:

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    2. Muhammad Akbar, 2023. "Effects of inflation uncertainty and exchange rate volatility on money demand in Pakistan: Bayesian econometric analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1470-1487, April.

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    More about this item

    Keywords

    Money demand; Johansen; VECM; Stock price.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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