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Title: |
Financial Factors and the Empirical Behavior of Money Demand: A Case
Study of Malaysia |
| Author: |
Ibrahim, Mansor
H. |
| Author
Affiliation: |
International Islamic U Malaysia |
| Source: |
International Economic Journal, Autumn 2001, v. 15, no. 3, pp. 55-72 |
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Publication Date: |
Autumn 2001 |
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Abstract: |
The paper analyses the roles of financial
factors in the behavior of M1 and M2 demands for Malaysia. The focus is
on the possible changes in the elasticities of the M1 and M2 money
demands in the environment of financial innovations and on the influence
of real stock prices on the holdings of monetary assets. Our results
reinforce existing studies that find the presence of the long-run M1 and
M2 money demands and structural instability in the dynamic specification
of the M1 demand. However, we are able to identify stable
error-correction model for the post-1986 M1 demand and for the M2
demand. Our results also indicate the reduction in the long run income
and exchange rate elasticities of the money demands. Meanwhile, the
interest rate sensitivity of the demands becomes more inelastic. Lastly,
we document the significance of real stock prices in influencing the
demand behavior, indicating the dominance of the wealth effect over the
substitution effect. |
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