Economic uncertainty, precautionary motive and the augmented form of money demand function

Pei-Tha Gan ()

Evolutionary and Institutional Economics Review, 2019, vol. 16, issue 2, No 10, 397-423

Abstract: Abstract A notable feature of empirical research on the inclusion of the economic uncertainty in the money demand function is that very few published papers rely on the specifications with formal clarity by studying the response of precautionary demand for money to changes in economic uncertainty. To overcome this shortcoming, this study uses the augmented form to specify the demand for money function and examines the empirical validity based on a sample of eleven countries, including four developed countries and seven developing countries. Using the panel error-correction technique, the findings provide some policy implications; the augmented form of money demand function can characterize the difference between the three primary motives of money demand—the precautionary motive, the transactions motive and the speculative motive, and support the choice of narrow money as a guide for monetary policy that ensures that economic agents have enough money to meet unexpected expenses triggered by economic uncertainty and helps to fine-tune the interest rate misalignment and output disruption that eventually improves the effectiveness of monetary policy.

Keywords: Dynamic heterogeneous panel; Economic uncertainty; Grid search algorithm; Money demand; Precautionary motive (search for similar items in EconPapers)
JEL-codes: C23 C61 E41 E52 E61 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s40844-019-00125-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eaiere:v:16:y:2019:i:2:d:10.1007_s40844-019-00125-5

Ordering information: This journal article can be ordered from
https://www.springer ... theory/journal/40844

DOI: 10.1007/s40844-019-00125-5

Access Statistics for this article

Evolutionary and Institutional Economics Review is currently edited by Kiichiro Yagi, Yuji Aruka and Takahiro Fujimoto

More articles in Evolutionary and Institutional Economics Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().