Qayyum, Abdul (2000): Demand for Real Money Balances by the Business Sector: An Econometric Investigation. Published in: The Pakistan Development Review , Vol. 39, No. 4 (2000): pp. 857-873.
Download (178kB) | Preview
The objective of this paper has been to estimate dynamic demand for money function for the business sector in Pakistan. It is found that the individual time series of the variables included in the money demand function are not stationary. They are integrated of order one. Further it is concluded that the one cointegration relationship between money demand and its determinants. The rate of inflation emerged as important determinant of real money balances demand by the business sector. In the long run business sector give no importance to the rate of interest while holding money.We have estimated dynamic stable money demand functions, which have remarkably good predictive power. In the short run rate of interest on saving deposit emerged an important determinant of money demand by the business sector. The previous money demand behaviour also plays an important role in the determination of current behaviour.
|Item Type:||MPRA Paper|
|Institution:||Pakistan Institute of Development Economics|
|Original Title:||Demand for Real Money Balances by the Business Sector: An Econometric Investigation|
|Keywords:||Money demand; business sector; Unit root; Cointegration; Pakistan|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money|
|Depositing User:||Abdul Qayyum|
|Date Deposited:||09. Mar 2007|
|Last Modified:||12. Feb 2013 19:59|
Banerjee, A., J. W. Galbrath, and J. Dolado (1990) Dynamic Specification with the General Error-Correction Form. Oxford Bulletin of Economics and Statistics 51:1, 95–104. Baumol, W. J. (1952) The Transactions Demand for Cash: An Inventory Theoretic Approach. Quarterly Journal of Economics 67:3, 545–556. Bera, A. K., and C. M. Jarque (1982) Model Specification Tests: A Simultaneous Approach. Journal of Econometrics 20: 2, 59–82. Bruesh, T. S., and L. G. Godfrey (1981) A Review of Recent Work on Testing for Autocorrelation in Dynamic Simultaneous Models. In D. Currie, R. Nobay and D. Peel (eds.) Macroeconomic Analysis: Essays in Macroeconomics and Econometrics. London: Croom Helm. Cameron, S., and A. Qayyum (1994) The Demand for Money by the Business Sector in Pakistan. Department of Social and Economic Studies, University of Bradford, UK. (Working Paper No. 94.8.) Chow, G. C. (1960) Tests of Equality Between Sets of Coefficients in two Linear Regressions. Econometrica 28: 3, 591–605. Dickey, D. A., and W. A. Fuller (1979) Distribution of the Estimators for Auto-regressive Time Series with a Unit Root. Journal of the American Statistical Association 74: 366, 427–431. Dickey, D. A., and W. A. Fuller (1981) Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica 49: 4, 1057–1072. Durbin, J., and G. S. Watson (1950) Testing for Serial Correlation in Least Square Regressions. I’Biometrica 38:1, 159–178. Engle, R. F., and C. W. J. Granger (1987) Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica 55: 2, 251–276. Friedman, M. (1987) Quantity Theory of Money. In J. Eatwell, M. Milgate and P. Newman (eds.) The New Palgrave: A Dictionary of Economics 4. London: The Macmillan Press. Granger, C. W. J. (1981) Some Properties of Time Series Data and Their Use in Econometric Model Specification. Journal of Econometrics 16:1, 121–130. Hendry, D. F., A. R. Pagan, and J. D. Sargan (1984) Dynamic Specification. In Z. Girliches and M. D. Interligator (eds.) Handbook of Econometrics. II. Amsterdam: Elsevier. International Monetary Fund (Various Issues) International Financial Statistics Monthly Issues. International Monetary Fund. Jain, P., and C. G. Moon (1994) Sectoral Money Demand: A Co-integration Approach. The Review of Economic and Statistics 76:1, 196–202. Jarque, C. M., and A. K. Bera (1980) Efficient Tests for Normality, Homoskedasticity and Serial Independence of Regression Residuals. Economics Letters 6, 255–259. Johansen, S. (1988) Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control 12:2–3, 231–254. Johansen, S., and K. Juselius (1990) Maximum Likelihood Estimation and Inference on Cointegration—with Application to the Demand for Money. Oxford Bulletin of Economics and Statistics 52:2, 169–210. MacKinnon, J. G. (1991) Critical Values for Cointegration Tests. In R. F. Engle and C. W. J. Granger (eds.) Long-run Economic Relationships: Readings in Cointegration. Oxford: Oxford University Press. Miller, M. H., and D. Orr (1966) A Model of the Demand for Money by Firms. Quarterly Journal of Economics 80:3, 413–442. Miller, M. H., and D. Orr (1968) The Demand for Money by Firms: Extension of Analytic Results. Journal of Finance 23: 5, 735–761. Osterwald-Lenum, M. (1992) A Note with Quintiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Statistics. Oxford Bulletin of Economics and Statistics 54:3, 451–472. Phillips, P. C. B. (1987) Time Series Regression with a Unit Root. Econometrica l. 55: 2, 277–301. Qayyum, A. (1995) A Cointegration Analysis of Money Demand in Developing Country: A Case Study of Pakistan. PhD Dissertation, unpublished, University of Bradford, UK. Qayyum, A. (1999) Demand for Money by the Business Sector in a Developing Country: Evidence from Pakistan. Kashmir Economic Review 7:1. Ramsey, J. B. (1969) Tests for Specification Errors in Classical Linear Least Squares Regression Analysis. Journal of Royal Statistical Society B 31:2, 350–371. State Bank of Pakistan (Various Issue) Bulletin. State Bank of Pakistan. Stock, J. H. (1987) Asymptotic Properties of Least-squares Estimators of Co-integrating Vectors. Econometrica 55: 4, 1035–1056. Tobin, J. (1956) The Interest Elasticity of Transactions Demand for Cash. The Review of Economics and Statistics 38:3, 241–247. Tobin, J. (1958) Liquidity Preference as Behaviour Towards Risk. Review of Economic Studies 25:66, 65–86. Ungar, M., and B. Zilberfarb (1980) The Demand for Money by Firms: The Stability and Other Issues Reexamined. The Journal of Finance 35: 3, 779–785. Wicken, M. R., and T. S. Breush (1988) Dynamic Specification, the Long Run, and the Estimation of Transformed Regression Models. Economic Journal 98, 189–205. Wilbratte, B. J. (1975) Some Essential Differences in the Demand for Money by Households and by Firms. Journal of Finance 304, 1091–1099.