Money demand and economic uncertainty in Barbados

Jackman, Mahalia (2010): Money demand and economic uncertainty in Barbados. Published in: The Empirical Economics Letters , Vol. 10, (May 2011)

Abstract

Using the unrestricted error correction model proposed by Pesaran et al (2001), this paper investigates the relationship between economic uncertainty and money demand in Barbados. Results suggest that in the short run, agents tend to increase money holdings in the face of heightened uncertainty. However, this impact does not carry on into the longer term. Rather, the results suggest that nominal assets may become less attractive during prolonged periods of economic uncertainty.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money demand; economic uncertainty; Barbados; fixed exchange rate
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

References

Attah-Mensah, J., 2004, Money Demand and Economic Uncertainty, Bank of Canada Working Papers, 2004-25, Bank of Canada.

Bollerslev, T., 1986, Generalized Autoregressive Conditional Heteroscedasticity, Journal of Econometrics, 31, 307–27.

Bruggeman, A., Donati, P. and Warne, A., 2003, Is the Demand for Euro Area M3 Stable, European Central Bank Working Paper Series, No.255, European Central Bank.

Campos, J., Ericsson, N.R. and Hendry, D.F., 2005, General – to – Specific Modelling: An Overview and Selected Bibliography, International Finance Discussion Paper No. 838, Board of Governors of the Federal Reserve System: USA.

Choi, W. G. and S. Oh, 2003, A Money Demand Function with Output Uncertainty, Monetary Uncertainty and Financial Innovations, Journal of Money, Credit and Banking, 35, No.5, 685-709.

Engle, R.F., 1982, Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation, Econometrica, 50, 987-1007.

Engle, R and C.W.J. Granger, 1987, Cointegration and Error-correction: Representation, Estimation and Testing, Econometrica 55, 251-276.

Hendry, D.F. and J.F. Richard, 1982, On the Formulation of Empirical Models in Dynamic Econometrics, Journal of Econometrics, 20, 3-33.

Johansen, S., 1988, Statistical Analysis of Cointegrating Vectors, Journal of Economic Dynamics and Control, 12, 231-254.

Johansen, S., 1996, Likelihood-based Inference in Cointegrated Vector Autoregressive Models, Oxford University Press.

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, 169–210.

Pesaran, M.H., Y. Shin and R. Smith, 2001, Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, 289-326.

Phillips, P. and B. Hansen, 1990, Statistical Inference in Instrumental Variables Regression with I(1) Processes, The Review of Economic Studies, 57, 99–125