ANVESHAK-International Journal of Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

A Revisit to an Open Economy Analysis and the Demand for Money Stability: A Case of India


Affiliations
1 Metropolitan State University of Denver, P. O. Box 173362, Campus Box 77, Denver, CO 80217-3362, United States
2 International Review of Business and Economics, Campus Box 77, P. O. Box 173362, College of Business, Metropolitan State University of Denver, Denver, CO 80217-3362, United States
     

   Subscribe/Renew Journal


The stability for Demand for Money (DFM hereafter) functional form has been a hot topic amongst Monetarists and Keynesian economists since the 1970s. Numerous studies have since been in search of the proper estimates of the DFM function and its determinants. This paper is a revisit of Kulkarni-Yuan (2006) paper, “Demand for Money in an Open Economy Setting: A Case of India”. It will compare K-Y Vector Error Correction Model (VECM hereafter) regression model for a closed and open economy using 12 years of additional data up to 2016, to new VECM regressions using data spanning for 48 years. With over half the data now available under an open economy setting, we should see an open economy model being the appropriate model to apply to India’s open economy. After running the regressions, we observe that our findings are consistent with traditional Monetarist theory where real GDP being the most significant determinant of demand for money, and interest rate and other variables have little lower effect than GDP. In case of India, this is quite consistent with expectations because interest rates are not inherently very flexible.

Keywords

Demand for Money Theory, Keynesian Theory, Monetarist Theory, Open Economy Model.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Arora, N. & Osati, E. A. 2016. “Does India have a Stable Demand for Money Function After Reforms? A Macroeconometric analysis”, Applied Econometrics, 2016, Vol. 44, pp. 25-37.

  • Boughton, J. 1991. “Long-run money demand in large industrial countries”, IMF Staff Papers, 1991 Mar, Vol. 38, pp. 1-32.

  • Friedman, M. 1959. “The demand for money- some theoretical and empirical results”, Journal of Political Economy, 1959 Jun, Vol. 67, pp. 327-351.

  • Friedman, M. 1937. “Studies in the Quantity Theory of Money”, Chicago, University of Chicago Press, 1937.

  • Goldfeld, S. M. 1973. “The Demand for Money Revisited”, Brookings Papers on Economic Activity, 1973, Vol. 3, pp. 577-638.

  • Inoue, T. & Shigeyuki, H. “An Empirical Analysis of the Money Demand Function in India”, Institute of Developing Economies, IDE Discussion Paper.

  • Jadhav, N. 1994. “Monetary Economics for India”, Macmillan India Ltd., New Delhi, 1994.

  • Judd, J. & Scadding, J. 1982. “The search for a stable money demand function: A survey of post 1973 literature”, Journal of Economic Literature, 1982 Sep, Vol. 20, pp. 993-1023.

  • Kulkarni, K. 1986 Apr. “Further empirical evidence on stability of demand for money in India”, Journal of Economics, 1986 Apr, pp. 18-34.

  • Kulkarni, K. & Erickson, E. L. 2000. “Demand for money in an open economy setting: A case of India”, Indian Journal of Economics, 2000 Jul, Vol. 81, No. 320.

  • Kulkarni, K. &Yuan, M. 2006. “Demand for money in an open economy setting: A case of India”, ICFAI Journal of Applied Economics, 2006 Sep, pp. 52-66.

  • Kulkarni, K. 2009. “Principles of Macro-Monetary Economics” Kendall Hunt Publishing Company, Dubuque, Iowa, 5th Edition, 2009.

  • Laidler, D. E. W. 1993. “The demand for money: Theories, evidence and problems”, Harper Collins College Publishers, Chicago, IL, 1993.

  • Lieberman, C. 1980. “The long-run and short-run demand for money, revisited”, Journal of Money Credit and Banking, 1980 Feb, Vol.12, pp. 43-57.


Abstract Views: 573

PDF Views: 1




  • A Revisit to an Open Economy Analysis and the Demand for Money Stability: A Case of India

Abstract Views: 573  |  PDF Views: 1

Authors

Thomas Maginnis
Metropolitan State University of Denver, P. O. Box 173362, Campus Box 77, Denver, CO 80217-3362, United States
Kishore G. Kulkarni
International Review of Business and Economics, Campus Box 77, P. O. Box 173362, College of Business, Metropolitan State University of Denver, Denver, CO 80217-3362, United States

Abstract


The stability for Demand for Money (DFM hereafter) functional form has been a hot topic amongst Monetarists and Keynesian economists since the 1970s. Numerous studies have since been in search of the proper estimates of the DFM function and its determinants. This paper is a revisit of Kulkarni-Yuan (2006) paper, “Demand for Money in an Open Economy Setting: A Case of India”. It will compare K-Y Vector Error Correction Model (VECM hereafter) regression model for a closed and open economy using 12 years of additional data up to 2016, to new VECM regressions using data spanning for 48 years. With over half the data now available under an open economy setting, we should see an open economy model being the appropriate model to apply to India’s open economy. After running the regressions, we observe that our findings are consistent with traditional Monetarist theory where real GDP being the most significant determinant of demand for money, and interest rate and other variables have little lower effect than GDP. In case of India, this is quite consistent with expectations because interest rates are not inherently very flexible.

Keywords


Demand for Money Theory, Keynesian Theory, Monetarist Theory, Open Economy Model.

References





DOI: https://doi.org/10.15410/aijm%2F2019%2Fv8i1%2F140596