The stability of money demand in China: Evidence from the ARDL model |
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| Authors: | Ahmad Zubaidi Baharumshah Siti Hamizah Mohd A Mansur M Masih |
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| Institution: | aDepartment of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia;bSchool of Economics, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia;cDepartment of Finance and Economics, College of Industrial Management, King Fahd University of Petroleum & Minerals (KFUPM), P.O. Box 1764, Dhahran 31261, Saudi Arabia |
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| Abstract: | This study examines the demand for broad money (M2) in China using the autoregressive distributed lag (ARDL) cointegration framework. The results based on the bounds testing procedure confirm that a stable, long-run relationship exists between M2 and its determinants: real income, inflation, foreign interest rates and stock prices. Importantly, our results reveal that stock prices have a significant wealth effect on long- and short-run broad money demand; its omission can lead to serious misspecifications in the money demand function (MDF). This finding is consistent with the notion that asset inflation (deflation) has systematic influence on the pattern of monetary aggregates. |
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| Keywords: | Money demand Stability Stock price ARDL |
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