Stability of long-run money demand function : evidence from Malaysia
There has been extensive theoretical and empirical research on the subject of money demand. The usefulness of a money demand function in the conduct of monetary policy depends critically on its stability. This paper studies the stability of the M1 and M2 money demand functions for Malaysia. The resu...
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| Format: | Article |
| Language: | English |
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KENMS-IIUM Press
2009
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| Online Access: | http://irep.iium.edu.my/7619/ http://irep.iium.edu.my/7619/1/Stability_of_long-run_money_demand_function-_evidence_from_Malaysia.pdf |
| _version_ | 1848776877153452032 |
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| author | Abdul Manap, Turkhan Ali |
| author_facet | Abdul Manap, Turkhan Ali |
| author_sort | Abdul Manap, Turkhan Ali |
| building | IIUM Repository |
| collection | Online Access |
| description | There has been extensive theoretical and empirical research on the subject of money demand. The usefulness of a money demand function in the conduct of monetary policy depends critically on its stability. This paper studies the stability of the M1 and M2 money demand functions for Malaysia. The results show that both M1 and M2 are cointegrated with their determinants. However, only the long-run parameter of M1 demand function is stable over the sample period but not M2. The demand function for M2 becomes unstable after 1997, which coincides with the Asian financial crisis. This result contradicts that of Nair et al. (2008) who claim that the Asian financial crisis does not have any influence on the stability of money demand function in Malaysia. Our findings also mean that a simple relationship between M2, income and interest rate characterized by the standard model is not sufficient for analyzing the effects of Malaysian monetary policy. |
| first_indexed | 2025-11-14T14:37:04Z |
| format | Article |
| id | iium-7619 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T14:37:04Z |
| publishDate | 2009 |
| publisher | KENMS-IIUM Press |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-76192012-01-19T08:12:27Z http://irep.iium.edu.my/7619/ Stability of long-run money demand function : evidence from Malaysia Abdul Manap, Turkhan Ali HG201 Money There has been extensive theoretical and empirical research on the subject of money demand. The usefulness of a money demand function in the conduct of monetary policy depends critically on its stability. This paper studies the stability of the M1 and M2 money demand functions for Malaysia. The results show that both M1 and M2 are cointegrated with their determinants. However, only the long-run parameter of M1 demand function is stable over the sample period but not M2. The demand function for M2 becomes unstable after 1997, which coincides with the Asian financial crisis. This result contradicts that of Nair et al. (2008) who claim that the Asian financial crisis does not have any influence on the stability of money demand function in Malaysia. Our findings also mean that a simple relationship between M2, income and interest rate characterized by the standard model is not sufficient for analyzing the effects of Malaysian monetary policy. KENMS-IIUM Press 2009 Article PeerReviewed application/pdf en http://irep.iium.edu.my/7619/1/Stability_of_long-run_money_demand_function-_evidence_from_Malaysia.pdf Abdul Manap, Turkhan Ali (2009) Stability of long-run money demand function : evidence from Malaysia. IIUM Journal of Economics and Management, 17 (2). pp. 261-285. ISSN 1394-7680 http://www.iium.edu.my/enmjournal/ |
| spellingShingle | HG201 Money Abdul Manap, Turkhan Ali Stability of long-run money demand function : evidence from Malaysia |
| title | Stability of long-run money demand function : evidence from Malaysia
|
| title_full | Stability of long-run money demand function : evidence from Malaysia
|
| title_fullStr | Stability of long-run money demand function : evidence from Malaysia
|
| title_full_unstemmed | Stability of long-run money demand function : evidence from Malaysia
|
| title_short | Stability of long-run money demand function : evidence from Malaysia
|
| title_sort | stability of long-run money demand function : evidence from malaysia |
| topic | HG201 Money |
| url | http://irep.iium.edu.my/7619/ http://irep.iium.edu.my/7619/ http://irep.iium.edu.my/7619/1/Stability_of_long-run_money_demand_function-_evidence_from_Malaysia.pdf |