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Determinants of Money Demand for India in Presence of Structural Break: An Empirical Analysis

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  • Aggarwal, Sakshi

Abstract

This paper empirically analyses India’s money demand function during the period 1996 to 2013 using quarterly data. Cointegration test suggests that money demand represented by M1 and Interest Rate have a unit root, whereas in the presence of structural break both of the variables are found to be stationary which implies that shocks are temporary in nature. It was found that there is no long term equilibrium relationship in the money demand function. Moreover, when the money demand function was estimated using dynamic OLS, it is concluded that GDP and short term interest rate has a positive impact on money demand (M1).

Suggested Citation

  • Aggarwal, Sakshi, 2017. "Determinants of Money Demand for India in Presence of Structural Break: An Empirical Analysis," MPRA Paper 76967, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:76967
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    References listed on IDEAS

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    1. Takeshi Inoue & Shigeyuki Hamori, 2014. "An Empirical Analysis of the Money Demand Function in India," World Scientific Book Chapters, in: INDIAN ECONOMY Empirical Analysis on Monetary and Financial Issues in India, chapter 2, pages 9-26, World Scientific Publishing Co. Pte. Ltd..
    2. 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.
    3. Mohsen Bahmani-Oskooee & Hafez Rehman, 2005. "Stability of the money demand function in Asian developing countries," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 773-792.
    4. Madhusudan Ghosh, 2000. "The Stability of Money Demand Function in Five Major Industrial Countries: Evidence from Cointegration Tests," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 35(2), pages 175-192, July.
    5. Tuck Cheong Tang, 2007. "Money demand function for Southeast Asian countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 34(6), pages 476-496, November.
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    More about this item

    Keywords

    Demand for Money; Monetary Policy; Cointegration;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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