Money demand function in SAARC countries

Nasri Harb () and Mohammed Nur Hussain

International Journal of Economics and Business Research, 2014, vol. 7, issue 4, 444-453

Abstract: We build a panel consisting of five countries of the South Asian Association for Regional Cooperation (SAARC). The five countries are Bangladesh, India, Nepal, Pakistan and Sri Lanka. The goal is to study the money demand function of those countries. Our results show that money demand (M1) is cointegrated with all determinants, which indicate that (M1) money demand function is stable, whereas the money demand (M2) is not. Two estimators are used in this study: FMOLS and DOLS. Most of the individual income elasticities are positive and significant as expected using both FMOLS and DOLS. Whereas the individual elasticities in respect to interest rate and exchange rate are not all significant. However, the group panel estimates for all the three variables are significant and have the expected sign using both FMOLS and DOLS.

Keywords: money demand; panel data; fully modified OLS; ordinary least squares; FMOLS; dynamic OLS; DOLS; SAARC countries; South Asian Association for Regional Cooperation; Bangladesh; India; Nepal; Pakistan; Sri Lanka. (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:7:y:2014:i:4:p:444-453

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