Demand for M2 in an Emerging-Market Economy: An Error-Correction Model for Malaysia

Subramanian Sriram

No 1999/173, IMF Working Papers from International Monetary Fund

Abstract: This paper analyses demand for M2 in Malaysia from August 1973 to December 1995 under both the closed- and open-economy framework. Based on the cointegration and weak-exogeneity test results, short-run dynamic error-correction models are specified and estimated. The results indicate that the demand is for real M2. Both the long- and short-run models are well-specified and are fairly stable. The long-run income elasticity is close to one with the opportunity cost variables carrying the expected signs. The external events have some influence on the stability.

Keywords: WP; opportunity cost; money demand; financial system; open economy; Asia; Malaysia; cointegration; error-correction; regime dummy; rate of return; narrow money; inflation rate; closed-economy formulation; opportunity cost variable; net interest rate measure; Demand for money; Exchange rates; Inflation; Treasury bills and bonds; Capital markets; Global (search for similar items in EconPapers)
Pages: 49
Date: 1999-12-01
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Citations: View citations in EconPapers (22)

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