Abstract
Abstract. Money demand has a key position in macroeconomics generally and monetary economics particularly. The improved economic condition of any country is a sign of increasing money demand and deteriorating economic climate is a sign of decreasing money demand (Maravic & Palic, 2005). In this study, Autoregressive distributed lag (ARDL) approach of co-integration developed by Pesaran et al., (2001) is used to estimate the money demand function. Real interest rate, GDP per capita, exchange rate, fiscal deficit, urban and rural population are selected to determine money demand function in Bangladesh over the period from 1975-2013. The co-integration analysis reveals that interest rate and per capita GDP exerts significant effect upon money demand both in long run and short run as well. Both urban and rural population have significant effect on money demand in the long run and short run and money demand function is found stable over time.
Keywords. Bangladesh, Money demand, Per Capita GDP, Real interest rate, Exchange rate, Fiscal deficit, Urban and Rural Population.
JEL. E41, G18, N30.References
Abdulkheir, A.Y. (2013). An analytical study of the demand for money in Saudi Arabia. International Journal of Economics and Finance, 5(4), 31-38. doi. 10.5539/ijef.v5n4p31
Ahmed, M. (2007). Cointegration, error correction and the demand for money in Bangladesh. Bangladesh Institute of Development Studies, 1-19.
Al-Towaijri, H.A., & Al-Qudair, K.H. (2006). The Impact of Government Deficits on Money Demand: Evidence from Saudi Arabia. Arab Journal of Administrative Sciences, 13(2), 1-15.
Arize, A.C., & Nam, K. (2012). The demand for money in Asia:Some further evidence. International Journal of Economics and Finance, 4(8), 59-71. doi. 10.5539/ijef.v4n8p59
Alkiswani, M. (2001). The demand for money in Syria: An Error Correction Model and Co-integration Approach. Journal of Damascus University, 17(1). 1-20.
Baharumshaha, A.Z., Mohd, S.H., & Masih, A.M. (2009). The stability of money demand in China: Evidence from the ARDL model. Economic Systems, 33(3), 231-244. doi. 10.1016/j.ecosys.2009.06.001
Economidou, C., & Bahmani-Oskooee, M. (2005). How stable is the demand for money in Greece? International Economic Journal, 19(3), 461-472. doi. 10.1080/10168730500199558
Faridi, M.Z., & Akhtar, M.H. (2013). An estimation of money demand function in Pakistan: Bound testing approach to co-integration. Pakistan Journal of Social Sciences, 33(1), 11-24.
Friedman, M. (1956). The Quantity Theory of Money a Restatement. University Chicago Press.
Fisher, I. (1911). The Purchasing Power of Money. New York: Macmillan.
Keynes, J.M. (1936). The General Theory of Employment, Interest, and Money. London and New York: Macmillan.
Khrawish, H.A., Khasawneh, A.Y., & Khrisat, F.A. (2012). The Impact of Budget Deficits on Money Demand in Jordan: Co-integration and Vector error correction Analysis. Journal of Investment Management and Financial Innovations, 9(2), 101-108.
Maravic, J., & Palic, M. (2005). Econometric analysis of money demand in Serbia. National Bank of Serbia , 1-22.
Marshall, A. (1923). Money, credit and commerce. Journal of the Royal Statistical Society, 86(3), 430-433.
Miah, H.A. (2011). Estimating money demand function of Bangladesh. BRAC University Journal, 8( 1), 31-36.
Mundell, R.A. (1963). Capital mobility and stabilization policy under fixed and flexible exchange rates. The Canadian Journal of Economics and Political Science, 29(4), 475-485. doi. 10.1017/S0315489000030036
Narayan, P.K., Narayan, S., & Mishra, V. (2009). Estimating money demand function for South Asian Countries. Empirical Economics, 36, 685-696. doi. 10.1007/s00181-008-0219-9
Ng, S., & Perron, P. (2001). Lag length selection and the construction of unit root tests with good Size and power. Econometrica, 69(6), 1519-1554. doi. 10.1111/1468-0262.00256
Nwaobi, G.C. (2002). A vector error correction and nonnested modelling of money demand function in Nigeria. Economics Bulletin, 3(4), 1-8.
Pesaran, M.H., Shin, Y., & Smith, R.J. (2001). Testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326. doi. 10.1002/jae.616
Pigou, A.C. (1917). The value of money. The Quarterly Journal of Economics, 32(1), 38-65. doi. 10.2307/1885078
Siddiki, J.U. (2000). Demand for money in Bangladesh: A cointegration analysis. Applied Economics, 32(15), 1977-1984. doi. 10.1080/00036840050155904
Tang, T.C. (2007). Money demand function for Southeast Asian countries:An empirical view from expenditures components. Journal of Economic Studies, 34(6), 476-496. doi. 10.1108/01443580710830952
Tobin, J. (1958). Liquidity preference as behavior towards risk. Review of Economic Studies, 25(2), 65-86. doi. 10.2307/2296205
Valadkhani, A. (2008). Long and short run determinants of the demand for money in the Asian-Pacific countries: an e mpirical panel Investigation. The Journal of Economics and Finance, 9(1), 47-60
World Bank, World Development Indicators. (2013). [CD Rom 2012]. World Bank, Washington, D.C .