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Does India have a stable demand for money function after reforms? A macroeconometric analysis

Author

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  • Nitin, Arora

    (Panjab University, India;)

  • Asghar, OsatiEraghi

    (Islamic Azad University, Arak, Iran; Panjab University, India)

Abstract

The present study analyzes the stability of the demand for money function in India over the period 1991:M4–2014:M9 using co-integration and Vector Error Correction Mechanism framework. From analysis, it has been observed that there exists a stable demand for money function in India during the post-reforms period, i.e. a long-run relationship does exist between demand for real balances, national output (Y), rate of interest (R) and exchange rate (ER). Two variables Y and ER have been observed to be affecting demand for real balances positively, while the observed effect of M2 is negative. Thus, the signs and magnitudes of all three regressors have been observed according to a-priori information without any paradoxical situation.

Suggested Citation

  • Nitin, Arora & Asghar, OsatiEraghi, 2016. "Does India have a stable demand for money function after reforms? A macroeconometric analysis," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 44, pages 25-37.
    • Handle: RePEc:ris:apltrx:0302
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    Cited by:

    1. Ali, Issa, 2017. "Estimating the demand for money in Libya: An application of the Lagrange multiplier structural break unit root test and the ARDL cointegration approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 46, pages 126-138.
    2. Masudul Hasan Adil & Neeraj Hatekar & Pravakar Sahoo, 2020. "The Impact of Financial Innovation on the Money Demand Function: An Empirical Verification in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(1), pages 28-61, February.
    3. Masudul Hasan Adil & Salman Haider & Neeraj R. Hatekar, 2020. "Empirical Assessment of Money Demand Stability Under India’s Open Economy: Non-linear ARDL Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 891-909, December.

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    More about this item

    Keywords

    money demand function; stability of demand for money function; co-integration; vector error correction mechanism.;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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