On the stability of money demand: evidence from Madagascar

Randrianarisoa, Radoniaina (2024): On the stability of money demand: evidence from Madagascar.

Abstract

This paper seeks to determine the existence of a stable demand for money relation for the case of Madagascar. We use an Engle-Granger error correction model to be able to demonstrate that in the long-run, the demand for money is negatively explained by the opportunity cost and positively by real income and the proxy for financial innovation. The latter, when taken into account, produces a less stable demand than when real income and opportunity cost are only used. Hence, the real demand for money in Madagascar is considered as stable, but fragile. This situation justified the migration to a more forward-looking monetary policy regime.

• Item Type: MPRA Paper
• Language: English
• Keywords: money demand, financial innovation, cointegration, vector error-correction model
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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