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Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates

BNM has discarded the use of monetary targeting due to the speeding up of financial reforms as the relationship between money and important macroeconomic indicators in Malaysia has weakened. However, the implementation of the interest rate targeting requires the authorities to alter the policy rat...

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Main Authors: Puah, Chin-Hong, Leong, Choi-Meng, Abu Mansor Shazali,, Lau, Evan
Format: Article
Language:English
Published: Penerbit Universiti Kebangsaan Malaysia 2018
Online Access:http://journalarticle.ukm.my/19809/1/jeko_522-21.pdf
http://journalarticle.ukm.my/19809/
https://www.ukm.my/jem/issue/v52i2/
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spelling my-ukm.journal.198092022-09-21T07:04:37Z http://journalarticle.ukm.my/19809/ Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates Puah, Chin-Hong Leong, Choi-Meng Abu Mansor Shazali, Lau, Evan BNM has discarded the use of monetary targeting due to the speeding up of financial reforms as the relationship between money and important macroeconomic indicators in Malaysia has weakened. However, the implementation of the interest rate targeting requires the authorities to alter the policy rate recurrently. Alternatively, the authorities may consider monetary targeting, which provides the ease of control of monetary aggregates, provided that a stable demand for money function can be derived. Nevertheless, financial liberalization has greatly affected the stability of money demand. Thus, this study estimated the demand for money function in Malaysia by considering the effect of the financial development in which a Divisia monetary aggregate has been constructed as an alternative measure of money and a monetization variable has been included in the function. The Johansen and Juselius cointegration test and error correction model are utilized to estimate the demand for money function. The empirical findings indicate that a plausible demand for money function is derived using Divisia M2. Furthermore, monetization appears as an important variable that contributes to a stable money demand. The presence of a stable Divisia M2 money demand has reassured the usefulness of monetary aggregate as the indicator for monetary policy purposes. Monetary targeting provides alternative policy target choice for the conduct of monetary policy. Divisia monetary aggregates can also serve as the alternative money measurement apart from the conventional money supply. Penerbit Universiti Kebangsaan Malaysia 2018 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/19809/1/jeko_522-21.pdf Puah, Chin-Hong and Leong, Choi-Meng and Abu Mansor Shazali, and Lau, Evan (2018) Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates. Jurnal Ekonomi Malaysia, 52 (2). pp. 267-278. ISSN 0127-1962 https://www.ukm.my/jem/issue/v52i2/
institution Universiti Kebangsaan Malaysia
building Tun Sri Lanang Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Kebangsaan Malaysia
content_source UKM Journal Article Repository
url_provider http://journalarticle.ukm.my/
language English
description BNM has discarded the use of monetary targeting due to the speeding up of financial reforms as the relationship between money and important macroeconomic indicators in Malaysia has weakened. However, the implementation of the interest rate targeting requires the authorities to alter the policy rate recurrently. Alternatively, the authorities may consider monetary targeting, which provides the ease of control of monetary aggregates, provided that a stable demand for money function can be derived. Nevertheless, financial liberalization has greatly affected the stability of money demand. Thus, this study estimated the demand for money function in Malaysia by considering the effect of the financial development in which a Divisia monetary aggregate has been constructed as an alternative measure of money and a monetization variable has been included in the function. The Johansen and Juselius cointegration test and error correction model are utilized to estimate the demand for money function. The empirical findings indicate that a plausible demand for money function is derived using Divisia M2. Furthermore, monetization appears as an important variable that contributes to a stable money demand. The presence of a stable Divisia M2 money demand has reassured the usefulness of monetary aggregate as the indicator for monetary policy purposes. Monetary targeting provides alternative policy target choice for the conduct of monetary policy. Divisia monetary aggregates can also serve as the alternative money measurement apart from the conventional money supply.
format Article
author Puah, Chin-Hong
Leong, Choi-Meng
Abu Mansor Shazali,
Lau, Evan
spellingShingle Puah, Chin-Hong
Leong, Choi-Meng
Abu Mansor Shazali,
Lau, Evan
Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates
author_facet Puah, Chin-Hong
Leong, Choi-Meng
Abu Mansor Shazali,
Lau, Evan
author_sort Puah, Chin-Hong
title Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates
title_short Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates
title_full Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates
title_fullStr Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates
title_full_unstemmed Revisiting money demand in Malaysia : simple-sum versus divisia monetary aggregates
title_sort revisiting money demand in malaysia : simple-sum versus divisia monetary aggregates
publisher Penerbit Universiti Kebangsaan Malaysia
publishDate 2018
url http://journalarticle.ukm.my/19809/1/jeko_522-21.pdf
http://journalarticle.ukm.my/19809/
https://www.ukm.my/jem/issue/v52i2/
_version_ 1744649883017543680
score 13.211869

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