How justified is abandoning money from monetary policy? Evidence from dynamically simulated ARDL

Adil, Masudul Hasan and Hatekar, Neeraj R. (2023) How justified is abandoning money from monetary policy? Evidence from dynamically simulated ARDL. Cogent Economics & Finance, 11 (1). ISSN 2332-2039

Preview

Text - Published Version Download (1MB) | Preview

Abstract

The stable money demand function is a crucial policy tool of the monetary policy of any central bank, which links the monetary sector of an economy to its real sector. Notably, after the global financial crisis of 2007–08, the role of money has come to be envisaged as an essential issue while formulating and conducting the monetary policy, especially at zero lower bound. It is crucial to know whether money demand is stable for inferring a sound monetary policy. To this end, the present study examines the short- and long-run money demand relationship and its stability in India from 2006:Q3 to 2019:Q4. The study has employed a dynamically simulated autoregressive distributed lag (ARDL) cointegration approach, which shows a well-specified and stable money demand in India after incorporating the inflation forecast variable as one of the essential determinants along with other covariates. Furthermore, the dynamically simulated impulse response also supports the economic relationship among variables. The current finding of stable money demand implies a policy implication in terms of focusing on monetary aggregate, in the ongoing flexible inflation targeting framework, as one of the essential information or indicator variables, which acts as a long-term assessment of short-term interest rate setting behaviour to achieve the macroeconomic goals.

Item Type:	Article
Authors:	Adil, Masudul Hasan and Hatekar, Neeraj R.
Document Language:	Language English
Uncontrolled Keywords:	Dynamically simulated ARDL, impulse response, cointegration, money demand, inflation targeting, inflation forecast
Subjects:	Social sciences Social sciences > Economics Social sciences > Economics > Macroeconomics & related topics
Divisions:	Azim Premji University - Bengaluru > School of Development
Full Text Status:	Public
URI:	http://publications.azimpremjiuniversity.edu.in/id/eprint/7008
Publisher URL:	https://doi.org/10.1080/23322039.2023.2213015

Actions (login required)

View Item