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Modelling the Stability of Money Demand in Small Open Economy: The Case of Malaysia

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  • Muhd-Zulkhibri
  • A. Majid

Abstract

This paper re-examines the money demand in Malaysia covering the period from 1974 to 2001, a period characterised by various events particularly the financial sector liberalisation, changes in monetary framework and currency crises. Our results support the existence of fairly stable long-run money demand function despite the various changes and developments in the economy. However, there is an evidence of instability in short-run money demand. On this ground, the monetary targeting framework in Malaysia seems to be appropriate at least in the 1990s and monetary aggregate continue to be a useful longer-term indicator in the formulation of monetary policy.

Suggested Citation

  • Muhd-Zulkhibri & A. Majid, 2005. "Modelling the Stability of Money Demand in Small Open Economy: The Case of Malaysia," The IUP Journal of Applied Economics, IUP Publications, vol. 0(2), pages 7-23, March.
    • Handle: RePEc:icf:icfjae:v:01:y:2005:i:2:p:7-23
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    4. Ahmad, Mahyudin, 2008. "The effect of financial deregulation on money demand in Malaysia," MPRA Paper 42295, University Library of Munich, Germany.

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