Money Demand Function: A Not-So-Fond Farewell in the Light of Financial Development |
Masudul Hasan Adil, 1 Neeraj Hatekar, 2 Sana Fatima, 3 Ibrahim Nurudeen, 4 Shan Mohammad, 5 |
1Indian Institute of Technology-Palakkad, India 2University of Mumbai, India 3GLA University, India 4Shehu Shagari College of Education, Nigeria 5Aligarh Muslim University, India |
Corresponding Author:
Masudul Hasan Adil ,Email: adilmasood.alig@gmail.com |
Copyright ©2022 The Journal of Economic Integration |
ABSTRACT |
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This study investigates the stability issues of real money balances considering financial development. We estimate real narrow (M1) and broad (M3) money demand in India during the post-financial reform, from 1996:Q2 to 2016:Q3. To check the short- and long-run relationships, this study uses the autoregressive distributed lag model of cointegration and other various time series techniques. After incorporating financial development into money demand, we determined short- and long-run relationships and a well-defined open-economy stable money demand specification (M1 and M3) in India. Having established money demand function, the policymaker and central bankers can use monetary aggregates as an indicator or information variable to predict output gaps and inflationary expectations under the inflation-targeting framework.
JEL Classification
E00: General E4: Money and Interest Rates E41: Demand for Money E52: Monetary Policy |
Keywords:
inflation-targeting | money demand | financial development | bound testing | cointegration | impulse response
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