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Investigating Long-Run Demand for Broad Money in the Gulf Arab Countries

Syed Abul Basher () and Stefano Fachin ()

No 2012/6, DSS Empirical Economics and Econometrics Working Papers Series from Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome

Abstract: We estimate the long-run demand for broad money at the Gulf Cooperation Council area level (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)) and at single country level over the 1980-2009 period. Applying time series and panel econometric tests, we first document the existence of long-run equilibrium relationship for money demand – both nationally and regionally. The estimated income- and interest elasticities in Qatar, Saudi Arabia and the UAE provide a validation for the Baumol-Tobin version of the inventory analysis of the transactions demand for money; while income elasticities in the other GCC economies reflect portfolio demand more strongly than transaction demand with a generally lower interest rate (semi-)elasticities. We discuss how the movements in income velocity can reconcile the varying elasticities documented across the six countries. The different pooled estimators of the regional money demand produce estimated income elasticities in the neighborhood of unity, while interest rate elasticities tend to be smaller than -0.2.

Keywords: Money demand; Endogenous money; Gulf monetary union; Panel cointegration; Poolability. (search for similar items in EconPapers)
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Date: 2012-12
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http://www.dss.uniroma1.it/RePec/sas/wpaper/20126_Basher_Fachin.pdf First version, 2012 (application/pdf)

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