Demand for Money in India: An ARDL Approach

Abdul Rishad (), Akhil Sharma () and Sanjeev Gupta ()
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Abdul Rishad: Central University of Himachal Pradesh
Akhil Sharma: Central University of Himachal Pradesh
Sanjeev Gupta: Central University of Himachal Pradesh

Chapter Chapter 2 in Current Issues in the Economy and Finance of India, 2018, pp 27-42 from Springer

Abstract: Abstract Understanding the stability of monetary aggregates and different determinantsDeterminants of money demandDemand in an economy is necessary for the planning and implementation of monetary policyMonetary policy because of the sensitivity and importance of money in an economy. This study empirically examines the broad moneyBroad money (M3) money demandDemand function in Indian economy by using a robust Autoregressive Distributed Lag (ARDLARDL ) model suggested by Pesaran et al. (J Appl Econom 16:289–326, 2001). It uses annual data on GDP per-capita, exchange rate and inflationInflation for a period of 41 years from 1975 onwards. The study found a strong co-integrationCo-Integration relation between M3 and its determinantsDeterminants for long-run but only the inflationInflation was co-integrated for short-run. It further found that the GDP elasticity & inflationInflation elasticity of money was positive and the elasticity of exchange rate is negative. The result of CUSUMCUSUM and CUSUMQCUSUMQ confirm a stable money demandDemand in Indian economy and using M3 as the policy yardstick is effective for monetary policyMonetary policy decisions.

Keywords: Broad money; ARDL; India; Determinants; CUSUM; CUSUMQ (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-99555-7_2

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