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A multivariate cointegration approach to the determination of reserves and money balances in India

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  • Ashok Parikh
  • David Lovatt

Abstract

The objective of this paper is to estimate both long-run reserves and long-run money demand equations using the multivariate cointegration approach. An economic model is constructed, based on the monetary approach to the balance of payments, in which the monetary authorities can control the money supply through changes in bank credit. The vector autoregressive methodology is used to derive latent equilibrium relationships and the short-run error correction equations are estimated for both nominal money stock and reserves. The monthly data for the period 1980 to 1994 are used for several macro variables of the Indian economy in the approach popularized by Johnson (1972).

Suggested Citation

  • Ashok Parikh & David Lovatt, 1997. "A multivariate cointegration approach to the determination of reserves and money balances in India," Applied Financial Economics, Taylor & Francis Journals, vol. 7(3), pages 213-221.
    • Handle: RePEc:taf:apfiec:v:7:y:1997:i:3:p:213-221
    DOI: 10.1080/096031097333565
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    References listed on IDEAS

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    5. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
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    Cited by:

    1. Ostermark, Ralf, 2001. "Multivariate cointegration analysis of the Finnish-Japanese stock markets," European Journal of Operational Research, Elsevier, vol. 134(3), pages 498-507, November.

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