DETERMINANTS OF MONEY DEMAND FUNCTION: A PANEL ARDL APPROACH ON SELECTED EMERGING COUNTRIES

Abstract

Central Banks have the authority to influence many macroeconomic variables by changing the money aggregates. The interaction between the money supply changes and other macroeconomic variables contributes to the determination of the most appropriate policy rules. Therefore, emphasize the significance of the stability and the examination of the money demand function. This study investigates the short-run and long-run relations amongst money demand and its determinants during the period 1996-2017 for nine selected Emerging Economies. Namely, Brazil, Chile, China, India, Hungary, Malaysia, Mexico, South Africa, Thailand. To this aim, a panel Autoregressive Distributed Lag (ARDL) approach was used to determine the dynamics of money demand employing the pooled mean group (PMG) estimator. Empirical results affirm the presence of a long term relationship among real money demand and its determinants; real income and real interest rate. Whereas the short-run estimations show the insignificance of real interest rate coefficients. An important policy implication that can be derived from these results is that fiscal policy rather than monetary policy should be used to stabilize emerging-market economies.