The Stabililty of Money Demand in Bangladesh: an Econometric Study
CHAPTER-ONE
1. Introduction: The money demand is one of the most closely studied relationships in economics. One reason is that the question of the stability of money demand has long been central to issues of monetary theory. However, despite intensive analytical and empirical efforts, there is no general consensus concerning the stability (or instability) of money demand. Existence of a stable money demand is very much important for maintaining monetary stability. Though there are lots of debates in this topic, it is a subject on which macroeconomists can do further research.
Many researchers have estimated money demand stability model for different economies in different points in time. To date, extensive theoretical and empirical research has been conducted in the search for the appropriate variables and functional forms of the stability of money demand both in the context of developed and developing economies. However, there have been a limited number of empirical studies that attempted to investigate the issue in the context of Bangladesh. These studies on the stability of money demand in Bangladesh suffer from flaws in terms of the: (i) adopted econometric estimation techniques; (ii) choice of appropriate variables; and (iii) data coverage, i.e., the time span. Most of the tests have employed standard regression techniques (i.e., ordinary least squares (OLS)) without examining the time series properties of the concerned macroeconomic variables. Since it is highly plausible that some of the time series variables that these studies have used are non-stationary in their levels, and therefore, the standard regression results are questionable.
Considering all these things and understanding the importance of this topic we take an attempt to test the determinants of SMD in Bangladesh. This study is structured as follows: chapter-1 contains introduction and objectives of the study. In chapter-2, we provide a review
1. Introduction: The money demand is one of the most closely studied relationships in economics. One reason is that the question of the stability of money demand has long been central to issues of monetary theory. However, despite intensive analytical and empirical efforts, there is no general consensus concerning the stability (or instability) of money demand. Existence of a stable money demand is very much important for maintaining monetary stability. Though there are lots of debates in this topic, it is a subject on which macroeconomists can do further research.
Many researchers have estimated money demand stability model for different economies in different points in time. To date, extensive theoretical and empirical research has been conducted in the search for the appropriate variables and functional forms of the stability of money demand both in the context of developed and developing economies. However, there have been a limited number of empirical studies that attempted to investigate the issue in the context of Bangladesh. These studies on the stability of money demand in Bangladesh suffer from flaws in terms of the: (i) adopted econometric estimation techniques; (ii) choice of appropriate variables; and (iii) data coverage, i.e., the time span. Most of the tests have employed standard regression techniques (i.e., ordinary least squares (OLS)) without examining the time series properties of the concerned macroeconomic variables. Since it is highly plausible that some of the time series variables that these studies have used are non-stationary in their levels, and therefore, the standard regression results are questionable.
Considering all these things and understanding the importance of this topic we take an attempt to test the determinants of SMD in Bangladesh. This study is structured as follows: chapter-1 contains introduction and objectives of the study. In chapter-2, we provide a review