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Policy Reforms and Stability of the Money Demand Function in India

Author

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  • Muralikrishna Bharadwaj B.

    (Vice Chancellor of the Sri Sathya Sai University and Department of Economics, Sri Sathya Sai University)

  • Vishwanath Pandit

    (Department of Economics, Sri Sathya Sai University e-mail: vnpandit@gmail.com)

Abstract

The traditional policy regimes need to be re-examined in the wake of the fast-emerging globalised world economy. This is particularly true in the case of developing economies and more so when it comes to monetary policy. This is because of the growing link between domestic money and financial markets on the one hand and the foreign exchange market on the other. A central building block in this context is the money demand function which must be stable and able to provide adequate linkages for policy formulation. This is the focus of this exercise as it attempts to relate the demand for real stock of money to the exchange rate, and to other familiar variables like rate of inflation, interest rate and the level of economic activity. The results are significant from the policy point of view under the new economic policy regime.

Suggested Citation

  • Muralikrishna Bharadwaj B. & Vishwanath Pandit, 2010. "Policy Reforms and Stability of the Money Demand Function in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(1), pages 25-47, January.
    • Handle: RePEc:sae:mareco:v:4:y:2010:i:1:p:25-47
    DOI: 10.1177/097380100900400102
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    References listed on IDEAS

    as
    1. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356, Elsevier.
    2. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen M. & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," Journal of Development Economics, Elsevier, vol. 46(2), pages 317-340, April.
    3. Samarjit Das & Kumarjit Mandal, 2000. "Modeling Money Demand in India: Testing Weak, Strong & Super Exogeneity," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 35(1), pages 1-19, January.
    4. Prakash G. Apte, 1997. "Money, Stock Prices and Industrial Activity in India Long-Run Relationships and Causality," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 32(2), pages 179-198, July.
    5. Mr. Subramanian S Sriram, 1999. "Demand for M2 in an Emerging-Market Economy: An Error-Correction Model for Malaysia," IMF Working Papers 1999/173, International Monetary Fund.
    6. McCallum, Bennett T., 1996. "International Monetary Economics," OUP Catalogue, Oxford University Press, number 9780195094947.
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    Cited by:

    1. Adil, Masudul Hasan & Haider, Salman & Hatekar, Neeraj, 2018. "The empirical verification of money demand in case of India: Post-reform era," MPRA Paper 87148, University Library of Munich, Germany, revised 07 Jun 2018.
    2. 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.

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