|
|
 |
| |
|
|
|
Stability Analysis of the Money Demand Function |
|
|
|
PP: 307-315 |
|
|
|
doi:10.18576/amis/190207
|
|
|
|
Author(s) |
|
|
|
Nidal Ali Abbas,
Khaled Mohammed Al-Sawaie,
Ibrahim Mohammad Khrais,
Issa Sweity,
Ibrahim Mohammad ALSahiem,
Asokan Vasudevan,
Hadeel Yaseen,
Suleiman Ibrahim Shelash Mohammad,
You Li,
|
|
|
|
Abstract |
|
|
| This study aims to analyze the interactions among real money balances, income, and interest rates in Jordan, with the goal of estimating Jordan’s money demand function and demonstrating its stability. Using quarterly data from 2008 to 2020, the research employs unit root and cointegration tests to determine stationarity and identify lasting connections among the variables. The coefficients are estimated using the dynamic least squares (DOLS) method. The findings indicate that a 1% rise in interest rates leads to a 0.4% drop in money demand, reflecting an interest rate elasticity of -0.40 for money demand. Additionally, the income elasticity of money demand is estimated at 2.65, meaning a 1% increase in real income, as measured by real GDP, results in a 2.65% increase in money demand. These results align with theoretical expectations. Moreover, the research demonstrates that Jordan’s demand for money has remained steady, as both narrow and broad money demand functions have shown consistency over the past decade, despite structural reforms and financial liberalization in the Jordanian economy. This consistency implies that persistent changes occur over time under a stable set of monetary policy tools that affect the demand for money, especially real cash holdings. In summary, the study highlights the enduring relationship among real money holdings, income, and interest rates in Jordan’s money demand equation, offering valuable insights for policymakers to develop effective monetary strategies and maintain economic stability within the nation.
|
|
|
|
|
|
|
|
