A Panel Data Approach to the Demand for Money and the Effects of Financial Reforms in the Asian Countries

Rao, B. Bhaskara and Kumar, Saten (2008): A Panel Data Approach to the Demand for Money and the Effects of Financial Reforms in the Asian Countries.

Abstract

Three panel data estimation methods are used to estimate the cointegrating equations for the demand for money (M1) in 14 developing Asian countries. Tests for the effects of financial reforms are made with estimates for two sub-samples of 1970-1985 and 1986-2005. Our results show that money demand functions in these Asian countries are stable and financial reforms have yet to have any significant effects. This implies that the central banks of these countries should use money supply, instead of the rate of interest, as the monetary policy instrument.

• Item Type: MPRA Paper
• Language: English
• Keywords: Pedroni, Mark and Sul and Breitung methods, Demand for money, Asian countries, Effects of financial reforms and Choice of monetary policy instruments
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models