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Abstract
This study aims to empirically estimate and evaluate the money demand function in Bangladesh, a critical component for effective monetary policy and macroeconomic stability in developing economies. While traditional money demand theories, such as those by Fisher and Keynes, primarily focus on income and interest rates, this research extends the scope by incorporating key policy-related and demographic variables: real interest rate, GDP per capita, exchange rate, fiscal deficit, and the disaggregated urban and rural population. Using annual time series data spanning from 1975 to 2013, the Autoregressive Distributed Lag (ARDL) model and co-integration approach are employed to capture both long-run equilibrium and short-run dynamics. The results confirm that the fundamental determinants, real interest rate and GDP per capita, exert a statistically significant influence on money demand across both the short and long term. Crucially, the analysis reveals that both urban and rural population segments are significant factors in the long-run and short-run money demand functions, suggesting that demographic structure plays a non-trivial role in monetary aggregates. Furthermore, the estimated function is found to be stable over time, providing a robust foundation for the formulation and implementation of monetary policy by the central bank. This comprehensive approach offers novel insights into the specific determinants of money demand stability within the context of Bangladesh's unique macroeconomic and demographic environment..
Keywords. Money Demand Stability; Bangladesh Economy; ARDL Model; Fiscal Deficit; Urban-Rural Demographics.
JEL. C38; I19; L52.
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