PAYMENT TECHNOLOGIES AND MONEY DEMAND: EVIDENCE FROM DYNAMIC PANEL

Payam Mohammad Aliha (), Tamat Sarmidi (), Abu Hassan Shaari () and Fathin Said
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Payam Mohammad Aliha: Ph.D candidate, National University of Malaysia (UKM), Malaysia
Tamat Sarmidi: Professor Dr. Faculty of Economics and Management, National University of Malaysia (UKM), Malaysia
Abu Hassan Shaari: Professor Dr. Faculty of Economics and Management, National University of Malaysia (UKM), Malaysia

Regional Science Inquiry, 2017, vol. IX, issue 1, 41-52

Abstract: The banking system has experienced rapid and significant technological changes in recent years, including automated teller machines (ATMs), automated clearing houses, point of sale systems, telephone transfers, automatic bill payer accounts, and credit cards. The total effect of these innovations on money demand has been the subject of some empirical research; however, the individual effect of most of these innovations has not been estimated. This article attempts to partially bridge the gap in the empirical literature by providing empirical evidence relating to the effect of ATMs on money demand in world scale. The demand for money is a very important for the conduct of monetary policy and measurement of the effectiveness of monetary policy. This study attempts to analyse if financial innovations has impacted the demand for money using a system (the original equation and the transformed one) GMM method. In this study, money demand dynamics are examined empirically by using the Blundell–Bond estimator which reinforces Arellano–Bond by making an additional assumption that first differences of instrument variables are uncorrelated with the fixed effects. It makes it possible to introduce more instruments that improve the efficiency considerably. We estimate the demand for money (M2) for a panel of 215 countries and territories from 2004 to 2013. The elasticity of the demand for real money to ATM is about 0.01 percent meaning that the sensitivity of money demand to ATM is low. In other words, money demand is not elastic with regard to ATM.

Keywords: Money demand; ATM; Financial innovation; Dynamic panel data model; GMM (search for similar items in EconPapers)
JEL-codes: C13 C40 C51 E40 E44 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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