The Stability of Money Demand Function: Evidence from South Africa

Authors

  • Farhan Abdi Omar
  • Abdishakur Mohamed Hussein

Abstract

The main purpose of this paper is to assess whether the Money Demand Function is stable in South Africa by employing the Johansen co-integration and the Vector Error Correction Model (VECM). The results indicate unstable money demand function among its determinant including real income, interest rate, stock price, and real exchange rate. More importantly, the M3 has a significant long-run relationship among its determinant except the interest rate. Furthermore, the short term dynamics show that unidirectional causality runs from determinants to the broader money except interest rate and exchange rate. This paper provides crucial evidence for policy-makers to consider the importance of the stock market activity to avoid misspecification of the money demand function.Keywords: Money demand, Johansen, VECM, Stock price.JEL Classifications: E5, E41DOI: https://doi.org/10.32479/ijefi.9799

Downloads

Download data is not yet available.

Downloads

Published

2020-09-04

How to Cite

Omar, F. A., & Hussein, A. M. (2020). The Stability of Money Demand Function: Evidence from South Africa. International Journal of Economics and Financial Issues, 10(5), 16–22. Retrieved from https://econjournals.com.tr/index.php/ijefi/article/view/9799

Issue

Section

Articles
Views
  • Abstract 393
  • PDF 451