Relationship of Fiscal Discipline and House hold Income on Money Demand Function in Sri Lanka

Umbreen Iftekhar, Dawood Mamoon and Hassan Shahid

MPRA Paper from University Library of Munich, Germany

Abstract: This paper attempts to find those determinants stirring the function of money demand in Sri Lanka during 1975-2013. The empirical analysis starts from applying the unit root tests i.e. Ng-Perron. We apply ARDL bound testing approach of co-integration to scrutinize the co-integration in variables. We select independent variables like per capita GDP, interest rate, exchange rate, fiscal deficit, urban population and rural population to determine money demand function. The findings revealed that income, interest rate and fiscal deficit effect money demand significantly and positively. The exchange rate affects negatively and significantly upon money demand. The stable money demand function is found over time applying CUSUM and CUSUMSQ stability test. The model of our study strongly recommends the real demand for M2 is vital monetary aggregate in terms of policy implication including the appropriateness of model in Sri Lanka.

Keywords: Interest Rates; Money Demand; Household Income (search for similar items in EconPapers)
JEL-codes: E4 E40 (search for similar items in EconPapers)
Date: 2017-01-31
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Journal Article: Relationship of Fiscal Discipline and Household Income on Money Demand Function in Sri Lanka (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:76501

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