Some Specialized Tests of Significance for Monthly Money Demand in India

Jariwala, Vijay S.,(2016) Some Specialised Tests of Significance For Monthly Money Demand in India. Sankhya Vignan, Vol 1, Issue 12, pp. 30-46

Posted: 20 Nov 2017

See all articles by Vijay Jariwala

Vijay Jariwala

Sardar Patel University - Department of Economics

Date Written: June 15, 2016

Abstract

A very large number of empirical studies have been conducted in many countries to evaluate the determinants and stability of the demand for money. The analysis of this paper deals with error correction, causality and stability issues in money demand estimation. In this study various money supply aggregates for monthly time series from April, 1990-91 to July, 2013-14 along with output, income and interest rates as money demand function variables have been experimented. Bidirectional and unidirectional Granger Causalities have been found among few of the variables. It is inferred that money demand systems are unstable and need to have error corrections to restore equilibrium therein. The demand for real cash balance is positively and significantly related to the movement of real stock price. The ineffectiveness of the interest rate shows the lack of response mechanism through the changes in the interest rate. Long term asset's market has emerged as a possible channel of monetary transmission which supports the hypothesis that money is required for investment purposes.

Keywords: Monthly Money Demand, Error Correction Mechanism, Granger Causality

JEL Classification: E4, E40, E41

Suggested Citation

Jariwala, Vijay Sureshchandra, Some Specialized Tests of Significance for Monthly Money Demand in India (June 15, 2016). Jariwala, Vijay S.,(2016) Some Specialised Tests of Significance For Monthly Money Demand in India. Sankhya Vignan, Vol 1, Issue 12, pp. 30-46, Available at SSRN: https://ssrn.com/abstract=3072867

Vijay Sureshchandra Jariwala (Contact Author)

Sardar Patel University - Department of Economics ( email )

V V Nagar
Anand, Gujarat 388120
India

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