Arthshastra Indian Journal of Economics & Research

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Determinants of Real Money Demand in India.


Affiliations
1 Assistant Professor (Corresponding Author), Department of Humanities, PSG College of Technology, Coimbatore - 641 004, Tamil Nadu., India
2 Assistant Professor, Department of Humanities, PSG College of Technology, Coimbatore - 641 004, Tamil Nadu., India

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The foundation of a nation's monetary policy is determined by the components of its money supply. The advent of technological advancements in the banking industry has led to the development of digital payment methods that serve as substitutes for the currency in circulation. The proliferation of digital payment methods has an impact on real money demand, thereby disturbing the money supply-demand equilibrium of the country. The current study made an effort to evaluate the factors that affect the real money demand in India, taking into account the use of digital payment methods like NEFT, debit cards, and credit cards, as well as macroeconomic variables like GDP, the exchange rate, and price level. The study used secondary time series data from the RBI database for the period from 2005–06 to 2020–21. The linear regression model was used to estimate the real money demand function, and it was found that income, exchange rate, and NEFT transactions positively influenced real money demand. Debit cards had a negative impact on the real money demand, concluding that an increase in the value of debit card transactions caused a decline in the real money demand. The study’s findings will help the RBI to enable methods to incorporate digital payment instruments in the components of the money supply, thereby maintaining a stable money demand function.

Keywords

Real Money Demand, Exchange Rate, NEFT, Debit Cards, Monetary Policy

JELClassification Codes : E4, E510, G210

Paper Submission Date : March 11, 2022 ; Paper sent back for Revision : July 15, 2022 ; Paper Acceptance Date : July 30, 2022

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  • Determinants of Real Money Demand in India.

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Authors

K. P. Radhika
Assistant Professor (Corresponding Author), Department of Humanities, PSG College of Technology, Coimbatore - 641 004, Tamil Nadu., India
Bhuvaneshwari D
Assistant Professor, Department of Humanities, PSG College of Technology, Coimbatore - 641 004, Tamil Nadu., India

Abstract


The foundation of a nation's monetary policy is determined by the components of its money supply. The advent of technological advancements in the banking industry has led to the development of digital payment methods that serve as substitutes for the currency in circulation. The proliferation of digital payment methods has an impact on real money demand, thereby disturbing the money supply-demand equilibrium of the country. The current study made an effort to evaluate the factors that affect the real money demand in India, taking into account the use of digital payment methods like NEFT, debit cards, and credit cards, as well as macroeconomic variables like GDP, the exchange rate, and price level. The study used secondary time series data from the RBI database for the period from 2005–06 to 2020–21. The linear regression model was used to estimate the real money demand function, and it was found that income, exchange rate, and NEFT transactions positively influenced real money demand. Debit cards had a negative impact on the real money demand, concluding that an increase in the value of debit card transactions caused a decline in the real money demand. The study’s findings will help the RBI to enable methods to incorporate digital payment instruments in the components of the money supply, thereby maintaining a stable money demand function.

Keywords


Real Money Demand, Exchange Rate, NEFT, Debit Cards, Monetary Policy

JELClassification Codes : E4, E510, G210

Paper Submission Date : March 11, 2022 ; Paper sent back for Revision : July 15, 2022 ; Paper Acceptance Date : July 30, 2022


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DOI: https://doi.org/10.17010/aijer%2F2022%2Fv11i3%2F172682