Old wine in a new bottle: money demand causality for 10 Asian countries

Abstract

Purpose – The purpose of this paper is to estimate causality properties between real money demand and a number of determinants, i.e., real output, the lending rate and the real exchange rate, across ten Asian economies. Design/methodology/approach – The study makes use of the causality methodology of Emirmahmutoglu and Kose (2011) over the period 1990-2012. Findings – The results document both bidirectional and unidirectional causality between monetary aggregates (M1 and M2) and their determinants for different country groups. Research limitations/implications – The empirical findings exemplify the role of the demand for money as a policy tool and can provide useful policy guidelines to the Asian central banks in their quest for price stability. Originality/value – This paper for the first time estimates causality properties between real money demand and a number of determinants, across ten Asian economies that have not used before in the literature. In addition, it employs the innovative methodology of Emirmahmutoglu and Kose (2011). The advantages of this approach are: it overcomes the problem of pre-testing needs to determine the order of integration, the lag orders on the autoregressive coefficients as well as the exogenous variable coefficients are mixed for all the cross-section units of the sample, and it is based on the approach of Meta-analysis which is capable of obtaining common results, combining those provided by a number of independent studies which test the same hypothesis.