Similar to the case of semi-log money demand
function, the welfare costs estimated, based on consumer's surplus approach, are lower than the welfare costs estimated using the compensation variation approach.
The study, therefore, contributes to the existing literature on the issue of stable money demand
function in Pakistan by using asset price index to explain the money demand
in a multivariate regression model and VECM for the time period 1981Q1-2017Q2.
Other driving factors for the inflation moderation and the Gibson paradox are the milder systematic monetary policy of the Fed, the increasing persistence of demand shocks, and the rise in the interest-rate semielasticity of money demand
Function has been subjected to extensive theoretical and empirical research because of its crucial importance as a fundamental building block in macroeconomic theory and as a critical component in the formulation of monetary policy.
A fixed money supply poses the well-known problem of deflation as supply cannot react to changes in money demand
. Depending on the share of people using Bitcoin in an economy, there could be impact on wages and probable corresponding effects on employment.
Keywords: Money Demand
; Money Supply; 2SLS; 3SLS; Pakistan
This paper examines the quarterly observations of the 1993-2009 period and uses cointegration analysis and an error correction model (ECM) to estimate money demand
functions in order to analyze the long-term effects and short-run dynamics in the money demand
(17) As a consequence of its interest rate target, the central bank then allows nominal money to grow over time in line with the real money demand
associated with growth in potential output.
The fundamental evolution of money stocks is determined in the context of money demand
. According to standard specifications, the demand for real money balances is based on real income, which can be seen as a proxy for the transaction volume in an economy and the opportunity cost of money holdings, which might include nominal interest rates and annualised inflation (Ericsson, 1998).
We emphasise from the outset that precisely what data should be used in the estimation of money demand
functions is unclear and that a large part of the literature discuss the importance of alternative data definitions.
Chen Yi-tuan, deputy director of the economic research department of the CBC, noted that with the upturn of the economy, trade-related money demand
will increase, leading to ample money supply which can fund stock investments.
In this context the present study examines the stable long run relationship between money demand
, stock prices and exchange rate in India.