Policy Uncertainty and the Demand for Money in Korea: An Asymmetry Analysis

Previous studies included money supply volatility as well as output volatility as measures of uncertainty in estimating the demand for money. However, a more comprehensive measure of uncertainty is now constructed for many countries and is known as policy uncertainty. When we included this new measure in the formulation of the demand for money in Korea and relied upon a nonlinear specification of the money demand which allows us to assess the asymmetric effects of changes in the policy uncertainty measure, we found asymmetric long-run effects of policy uncertainty on the demand for cash in Korea. Our conjecture is that increased uncertainty induces Koreans to hold less cash in favor of safer assets and decreased uncertainty has opposite effects, though at different rate.     

ECONOMIC UNCERTAINTY,MONETARY UNCERTAINTY AND THE DEMAND FOR MONEY IN AUSTRALIA

The demand for money and its stability in Australia has received a great deal of attention in the past and has resulted in its own literature. Depending upon estimation method and period of analysis, previous research has provided mixed findings. By including a measure of economic uncertainty and a measure of monetary uncertainty (both GARCH‐based) in the long‐run money demand for M3, and by using the bounds testing approach under which variables could be stationary or non‐stationary, we provide strong evidence that the M3 money demand in Australia is stable. Both uncertainty measures do have short‐run as well as long‐run effects on the demand for M3 in Australia, factors that previous research did not consider.     

Economic policy uncertainty and demand for money in Australia

The demand for money has received a great deal of attention in the empirical literature. This literature, however, has emphasized factors such as interest rate, income, inflation rate and exchange rate as the primary determinants of money demand. Although an emerging strand of literature examines uncertainty as a potential determinant of money demand, findings have been mixed. Using a news-based Economic Policy Uncertainty (EPU) index and Australian quarterly data from 1998 to 2017, we study the impact of policy uncertainty on demand for money. Autoregressive distributed lag (ARDL) results show that the economic policy uncertainty measure has a negative short-run effect on the demand for money, suggesting the wider public hedge against future expected inflation, and positive long-run effect, whereby the broader public hold more cash to stay liquid during times of economic uncertainty. Also, introducing nonlinearity into the money demand equation, we find an asymmetric effect, more in favour of currency appreciations, supporting the expectations effect of further appreciations in exchange rate movements.     

Economic uncertainty,monetary uncertainty and the Korean demand for money

Economic uncertainty and monetary uncertainty are said to affect public’s holding of money in either direction. In this paper, we consider the Korean demand for money, and after including two GARCH-based measures of output uncertainty and monetary uncertainty, we show that both measures exert significant effects on the demand for money in Korea in the short run. However, only the adverse effects of output uncertainty lasts into the long run. Indeed, including the two uncertainty measures yield a stable demand for money in Korea.     

The impact of economic and monetary uncertainty on the demand for money in emerging economies

By introducing uncertainty, monetary volatility and economic volatility are said to make the public cautious, hence increase their cash holdings or their demand for money. On the other hand, because of monetary and economic uncertainty if the public seek safer assets than money, they may hold less cash. In the absence of any paper testing for the impact of economic and monetary uncertainty on the demand for money in emerging economies, this article fills the gap by considering the experiences of six Central and Eastern European emerging economies and four other emerging economies. We found that the impact is transitory in most countries. Moreover, money demand is found correctly specified and stable in most countries, suggesting that policy based on monetary targeting could still be effective despite significant output and monetary uncertainty.     

货币增长不确定性与通货膨胀不确定性——“波动溢出”假说与实证检验

文章基于通货膨胀——通货膨胀不确定性关系的理论研究,提出货币增长不确定性向通货膨胀不确定性波动溢出的计量检验假说,并利用中国数据,运用多元GARCH模型进行实证检验。结果发现,存在货币增长不确定性显著向通货膨胀不确定性波动溢出的效应。这意味着,货币增长不确定性具有提供有关预测通货膨胀不确定性信息的能力。同时也表明,货币增长不确定性是通货膨胀不确定性的重要解释变量,其重要性不应被忽视。实证结论的政策含义是:减少货币增长不确定性是降低通货膨胀不确定性的重要途径,我国20世纪90年代中后期稳健的货币政策所带来的通货膨胀不确定性显著降低的现实支持了这个观点。     

Economic Uncertainty,Monetary Uncertainty,and the Demand for Money: Evidence From Asian Countries

In 1984 Nobel Lauriat Milton Friedman claimed that the decline in velocity of money or an increase in the demand for money was due to volatility of money supply. Another study argued that if monetary volatility could impact the demand for money, so can output volatility (as a measure of economic uncertainty). Both measures of uncertainty can cause people to reallocate their assets between cash and real assets that are less risky. If public become more cautious about the future, they will hold more cash today. However, if they chose to hedge against uncertain prices, they may hold more real assets and less cash. These two hypotheses are tested for Asian countries using bounds testing approach. While both measures are found to have short‐run significant effects on the demand for money in almost all countries, the short‐run effects last into the long run in half of the countries. Furthermore, we find positive and negative effects of both measures which are in line with previous research related to a few developed countries.     

后凯恩斯主义经济学的货币非中性理论

后凯恩斯主义经济学的突出贡献是将凯恩斯关于不确定性和货币非中性思想发展为一个完整的关于货币非中性的理论框架,它强调无论是长期还是短期,货币都是影响真实部门的一个重要因素。后凯恩斯主义的货币理论在凯恩斯的灵活偏好理论中加入融资性需求,这样就必然导致存量和流量的矛盾,从而造成利息率的不确定性和波动性;从不同角度分析了货币的创造过程,提出了内生货币供给理论。这一理论完全是与主流经济学所信奉的货币数量论对立的,从而拒绝资本主义经济自然趋于长期充分就业均衡的概念。     

Analysing money demand relation for OECD countries using common factors

This article investigates the existence of a long-run money demand relation for a panel data consisting of 13 OECD countries. The analysis is based on the most recent data. The existence of a long-run money demand relation is tested with two new meta-analytic panel cointegrating rank tests which are robust to cross-sectional dependence. Cross-sectional dependency in the data generating process is modelled by unobserved common factors. The observed data are decomposed into idiosyncratic and common components, and these two components are analysed separately to find out the driving forces of the long-run stationary relationship. The evidence shows that the long-run money demand relation is driven by the cross-unit cointegration. Finally, the long-run relation is estimated by taking the common factors into account.     

On the Stability of Long-Run M2 Demand in Japan

In this study we examine the stability of long-run broad money demand in Japan. In contrast to previous studies of Japanese broad money demand, we use a series of tests designed specifically to test for structural instability in the presence of I(1) processes. According to these tests, the Japanese broad money demand function appears to be stable over a period of financial innovation and deregulation.
JEL Classification Numbers: E41, C22.     

The demand for money in Austria

In this paper, the demand for real money M1, M2, and M3 is estimated for Austria over the time period 1965–96. The modelling takes place within the framework of a small vector autoregression. To estimate the demand for money, two-equation error-correction models are constructed, which contain the short-run dynamics and the long-run economic equilibrium. It is found that a stable money demand exists for all monetary aggregates. The long-run equilibrium of M1, after accounting for a structural break in 1979, can be characterised as a classical type of money demand, with no interest rate effects and an elasticity of one for real GDP. In the case of M2 and M3, we find a unit coefficient on income and a significantly negative influence of a long-term interest rate. The statistical properties of the estimated short-run money demand equations – considering in-sample and out-of-sample tests – are generally very good. First version received: October 1996/Final version received: April 2000     

On the empirical specification of the European demand for money

This paper tests several aspects concerning the specification of an empirical demand for money function for the European Monetary Union. The econometric results show that wealth is a statistically significant determinant for the demand for money. A homogeneous sample period is statistically established, and a demand equation for liquid assets (other than strict money) is presented. A new method to weight and add national variables is also suggested to obtain European aggregates. The main policy implication is that monetary aggregate targeting should not be the main basis for monetary policy implementation.     

Stability of money demand function revisited in China

As China's economic reforms have undergone significant structural changes after 1979, it has been rather difficult to formulate a stable money demand function over the period following that year. While previous literature on the long-run relationship of money demand in China shows the existence of stable money demand, this article revisits the stability of the China money demand function over the period after 1979. To employ the unit root tests and the cointegration tests with structural break, the empirical evidence demonstrates that economic and financial deregulation did affect the stability of demand for money in China over the period 1977 to 2002. Moreover, the estimated long-run income and interest elasticity are respectively 1.01 (1.11) and ?0.14 (?0.08) using the real M1 (M2) equation. In addition, real income and the interest rate are found to be weakly exogenous. We overall do find structural breakpoints mainly in 1980 and 1993, and they look to match clearly with corresponding critical financial and economic incidents.     

On the short-run and long-run demand for money

This paper makes precise the relationships between short-run and long-run demand for money, using methods commonly employed in growth models. It estimates these demand functions with quarterly French data and tests the validity in France of the modern version of the quantity theory of money. The effects of inflation on the demand for money are studied both in the short run and the long run. The speed of adjustment of money balances towards their long-run level is measured.     

Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009

Using annual data for the period 1970?C2009, this paper deploys the ARDL cointegration approach to determine whether there exists an economically meaningful, stable narrow money demand relationship in Australia. The statistical results suggest the presence of a long-run equilibrium relationship between real narrow money balances, real income, a representative domestic interest rate (e.g., the yield on Australian government short-term bonds) and the nominal effective exchange rate of the Australian dollar. The statistical tests suggest no significant instability in the narrow money demand relationship despite financial deregulation and innovation in Australia since the early 1980s. In contrast, the paper reports statistical results which suggest no meaningful, stable broad money demand relationship in Australia over the sample period.     

The response of term rates to monetary policy uncertainty

This paper shows that greater uncertainty about monetary policy can lead to a decline in nominal interest rates. In the context of a limited participation model, monetary policy uncertainty is modeled as a mean preserving spread in the distribution for the money growth process. This increase in uncertainty lowers the yield on short-term maturity bonds because the household sector responds by increasing liquidity in the banking sector. Long-term maturity bonds also have lower yields but this decrease is a result of the effect that greater uncertainty has on the nominal intertemporal rate of substitution—which is a convex function of money growth. We examine the nature of these relations empirically by introducing the GARCH-SVAR model—a multivariate generalization of the GARCH-M model. The predictions of the model are broadly supported by the data: higher uncertainty in the federal funds rate can lower the yields of the three- and six-month treasury bill rates.     

Causal Relationships in Australian Wage Inflation and Minimum Award Rates*

When variables are correlated in time-series studies, it is often difficult to determine which is cause and effect, and in what sense. This paper applies multivariate time-series tests of causality to Australian wage, price, minimum wage award, labour demand and strike (working days lost) variables for 1953-76. The results provide tentative support for a model in which strikes are exogenous:the size of Arbitration Commission awards is determined by strikes (suggesting that a trade union capture theory of Arbitration Commission regulation may apply):money wages are determined by minimum wage awards; and the demand for labour variable (measured in this paper by the ratio of actual to potential output) is determined (in a negative relationship) by money wages.     

Stock prices and long-run demand for money: evidence from Malaysia

This paper investigates the money demand function for Malaysia in the 1971-1996 period using the multivariate cointegration and error correction model methodology. The results suggest that a stable long-run relationship exist between real M2, the interest rate differential, income and stock prices. Stock prices have a significant negative substitute effect on long-run as well as short-run broad-money demand (M2) and its omission can lead to serious misspecification in the money demand function. The analysis from the vector error correction model (VECM) and the Toda & Yamamoto (1995) causality tests find that money is endogenous and that there is at least a unidirectional relationship between stock prices and real M2. Stock prices Granger cause real M2 indirectly through income between interest rates and stock prices and stock prices and money stock. This paper comes to the conclusion that due to the endogeneity of money, M2 cannot be completely controlled by Malaysia's central bank. Therefore, in formulating future monetary policy, the response of money demand to stock prices should be considered.     

Currency substitution and seignorage in eastern europe

Economic and political uncertainty, high inflation and liberalization of foreign exchange restrictions have encouraged substantial currency substitution in the economies in transition. This paper presents empirical evidence on currency substitution in four Eastern European countries in transition: Poland, Hungary, Romania and Bulgaria. It is shown how currency substitution affects money demand and by that seignorage revenues. The empirical estimates of the money demand functions are used to calculate the seignorage maximizing rate of inflation in the economies in transition.     

Money growth,uncertainty and macroeconomic activity: a multivariate GARCH analysis

The impact uncertainty has on money growth has received much attention in recent years and is an issue of critical importance to central banks, particularly for those, such as the European Central Bank (ECB), which place a strong emphasis on monetary analysis in monetary policy formulation. Some recent papers examining this issue use ad hoc estimates and measure variability rather than uncertainty. We employ a multivariate GARCH model, which measures uncertainty by the conditional variance of the data series, to investigate whether macroeconomic uncertainty and monetary uncertainty Granger-cause changes in real money. The estimated model also allows us to investigate how monetary uncertainty impacts economic activity. We find that macroeconomic uncertainty impacts positively on US real M2 growth over a two-year horizon but that monetary uncertainty does not cause changes in real M2. Instead, our results indicate that real money growth causes monetary uncertainty. Monetary uncertainty is found to have a negative effect on real economic activity and on macroeconomic uncertainty. We conclude by discussing the implications of these results and the methodological approach used for institutions such as the ECB that give monetary analysis a prominent role in their monetary policy strategy.