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Title: LONG-RUN MONEY DEMAND FUNCTION: A NON-STATIONARY PANEL DATA APPROACH
Authors: Disha Gupta
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Disha Gupta PhD Scholar, Department of Economics, Delhi School of Economics, University of Delhi, Delhi-110007, India
MLA 8 Gupta, Disha. "LONG-RUN MONEY DEMAND FUNCTION: A NON-STATIONARY PANEL DATA APPROACH." Int. j. of Social Science and Economic Research, vol. 6, no. 8, Aug. 2021, pp. 2953-2972, doi.org/10.46609/IJSSER.2021.v06i08.028. Accessed Aug. 2021. APA 6 Gupta, D. (2021, August). LONG-RUN MONEY DEMAND FUNCTION: A NON-STATIONARY PANEL DATA APPROACH. Int. j. of Social Science and Economic Research, 6(8), 2953-2972. Retrieved from https://doi.org/10.46609/IJSSER.2021.v06i08.028 Chicago Gupta, Disha. "LONG-RUN MONEY DEMAND FUNCTION: A NON-STATIONARY PANEL DATA APPROACH." Int. j. of Social Science and Economic Research 6, no. 8 (August 2021), 2953-2972. Accessed August, 2021. https://doi.org/10.46609/IJSSER.2021.v06i08.028.
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Abstract: This paper examines the long-run money demand function using non-stationary panel data techniques for the panel data set of selected nine countries out of which three countries are developed namely United States, Australia and Iceland, and six countries are developing namely India, South Africa, Bangladesh, Mauritius, Costa Rica and Thailand for the period 1990 to 2014. The variables in the model are Real M3 (nominal broad money and GDP deflator), Real GDP, and opportunity cost (real interest rate). We used four types of panel unit root tests namely Levin, Lin and Chu (2002) test; Im, Pesaran and Shin (2003) test; Fisher ADF test; and Fisher PP test, and Panel cointegration tests (Pedroni and Kao cointegration tests) are used to analyse the annual observations. In the study, we observed that all the variables are non-stationary in levels but stationary in first differences implying that they are integrated of order one. We found a cointegration between the variables in our model which suggests a long-run relationship. The coefficients of the model have been estimated using the FMOLS and DOLS methods of Panel cointegration regression. From our study, we find a stable long-run money demand relationship for the panel data set under consideration with income elasticity close to unity and interest elasticity equal to -0.436.

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