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Exchange rate volatility and demand for money in less developed countries

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  • Sahar Bahmani

Abstract

One implication of currency substitution is that the exchange rate could serve as another determinant of the demand for money. Indeed, many studies have justified this empirically for the majority of countries. If the exchange rate serves as a determinant of the demand for money, exchange rate volatility could also influence money demand. By using annual data from 15 less developed countries and the bounds testing approach, we show that exchange rate volatility has short-run effects on the demand for real M2 monetary aggregate in LDCs. However, in most countries, short-run effects are not sustained. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Sahar Bahmani, 2013. "Exchange rate volatility and demand for money in less developed countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(3), pages 442-452, July.
    • Handle: RePEc:spr:jecfin:v:37:y:2013:i:3:p:442-452
    DOI: 10.1007/s12197-011-9190-y
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. C. P. Barros & João Ricardo Faria & Luis A. Gil-Alana, 2017. "The demand for money in Angola," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 408-420, April.
    3. Vittorio Daniele & Pasquale Foresti & Oreste Napolitano, 2017. "The stability of money demand in the long-run: Italy 1861–2011," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 11(2), pages 217-244, May.
    4. Niaz Hussain Ghumro & Mohd Zaini Abd Karim, 2017. "The Role Of Remittances In The Stability Of Money Demand In Pakistan: A Cointegration Analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 62(213), pages 45-66, April - J.
    5. Pei-Tha Gan, 2019. "Economic uncertainty, precautionary motive and the augmented form of money demand function," Evolutionary and Institutional Economics Review, Springer, vol. 16(2), pages 397-423, December.

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    More about this item

    Keywords

    Money Demand; Exchange Rate Volatility; Bounds Testing; Less Developed Countries; E41; F30;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F30 - International Economics - - International Finance - - - General

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