Ahmad, Mahyudin (2008): The effect of financial deregulation on money demand in Malaysia. Published in: Proceedings of the National Seminar on STSS 2008 (4. June 2008): pp. 405-415.
Download (342kB) | Preview
The study seeks to examine the impact of financial deregulation on the money demand in Malaysia and the implication of altered money demand pattern on the Malaysian monetary conduct. It also attempts to investigate the currency substitution effect as result of the financial market development and integration of domestic market with the rest of the world. The study utilizes Augmented Dickey Fuller (ADF) and Phillips Perron (PP) tests for unit root and stationarity of data, multivariate Johansen cointegration test, and Vector Error Correction model in the analysis of the dynamics of the short run money demand model and adjustment to restore its long run equilibrium. Findings suggest a stable long run relationship of money demand in Malaysia and a greater income elasticity of money demand supported by growing degree of monetization and substantial improvement in banking infrastructure as well as some degree of currency substitution among domestic residents. However, short run dynamic of money demand is found to be instable and correction of its disequilibrium over time was somehow slow, hence shifting monetary targeting by authority from monetary aggregates towards interest rates.
|Item Type:||MPRA Paper|
|Original Title:||The effect of financial deregulation on money demand in Malaysia|
|Keywords:||Financial deregulation; money demand; vector error correction model;|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E60 - General
|Depositing User:||Mahyudin Ahmad|
|Date Deposited:||31. Oct 2012 21:07|
|Last Modified:||12. Feb 2013 10:01|
Anuar, A.R. (1986). The Demand for Money in Malaysia: 1956(1)-1984(4), Analisis, Jilid 1, Bil. 1, 27-40.
Arize, A.C., Malindretos, J., and Shwiff, S.S. (1999). Structural Breaks, Cointegration and Speed of Adjusment: Evidence from 12 LDCs Money Demand, International Review of Economics and Finance, 8, 399-420.
Bank Negara Malaysia (1999). The Central Bank and the Financial System in Malaysia: A Decade of Change 1989-1999, Bank Negara Malaysia, Kuala Lumpur.
Bank Negara Malaysia (1999). Monthly Statistical Bulletin, various issues, Bank Negara Malaysia, Kuala Lumpur.
Dahalan, J. (2004). The Uncertainty of the U.S. and Japanese Interest Rates and Its Effect on Money Demand in Malaysia, International Journal of Management Studies, 11(1), 71-89.
Dekle, R., and Pradhan, M. (1999). Financial Liberalisation and Money Demand in ASEAN countries, International Journal of Finance and Economics, 4(3), 205-215.
Enders, W. (1995). Applied Econometric Time Series, First Edition, John Wiley & Sons, Inc., United States of America.
Engle, R.F., and Granger, C.W.J. (1987). Co-integration and Error Correction: Representation, Estimation and Testing, Econometrica, Vol. 55, No. 2 (March, 1987), 251-276.
Habibullah, M.S. (1987). Income Expectations and the Demand for Money in Malaysia: Some Empirical Evidence, Analisis, Jilid 2, Bil. 1, 61-71.
Habibullah, M.S. and Ghaffar, R.A. (1989). The Demand for Currency and Demand Deposits in Malaysia: An Empirical Evidence, Analisis, Jilid 3, Bil. 1 dan 2, 111-122.
Hussin, A.A., Hee, N.T., and Razi, A. (1993). Financial Liberalisation and Interest Rate Determination in Malaysia, Bank Negara Malaysia Discussion Papers No. 12, Bank Negara Malaysia, Kuala Lumpur.
Johansen, S. (1988). Statistical Analysis of Cointegration Vectors, Journal of Economic Dynamics and Control, 12, 231-254.
Majid, M. Z. A. (2004). Reassessing the Stability of Broad Money Demand in Malaysia, Bank Negara Malaysia Discussion Papers, Kuala Lumpur.
Marashdeh, O. (1997). The Demand for Money in An Open Economy: The Case of Malaysia, paper presented at the Southern Finance Association Annual Meeting, Baltimore, Maryland, USA.
Osterwald-Lenum, M. (1992). A Note with Quantiles of the Asymptotic distribution of the Maximum Likelihood Cointegration Rank Test Statistics: Four Cases. Oxford Bulletin of Economics and Statistics, 54, 461-472.
Sriram, S.S. (1999). An Econometric Analysis of Demand for M2 in Malaysia: 1973-1995, Center for Economic Research Paper, George Washington University.