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Long run demand for money in India: A co-integration approach

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  • I, Sahadudheen

Abstract

Demand for money plays a pivotal role in determining the welfare implications of monetary policy actions in an economy. This study estimated the demand for money in India and investigated various determinants of demand for money for the period 1970 to 2009. The study utilized Johansen-juselius cointegration analysis to test for the existence of a long run relationship between the variables and an Error Correction method is then used. The study concluded that the income and price has a positive effect on the demand for money. On the other hand, interest rate and exchange rate has a negative. The income elasticity is 1.98 and showing significant, implying that in India, a one percent economic growth requires around 1.98 percent increase in the nation’s money supply

Suggested Citation

  • I, Sahadudheen, 2012. "Long run demand for money in India: A co-integration approach," MPRA Paper 65563, University Library of Munich, Germany, revised 2012.
    • Handle: RePEc:pra:mprapa:65563
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    References listed on IDEAS

    as
    1. 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.
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    Cited by:

    1. Qadrdan, Meysam & Cheng, Meng & Wu, Jianzhong & Jenkins, Nick, 2017. "Benefits of demand-side response in combined gas and electricity networks," Applied Energy, Elsevier, vol. 192(C), pages 360-369.

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    More about this item

    Keywords

    cointegration; Demand for money; ECM; India; unit root;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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