Abstract

The determinants and stability of money demand functions, as per new definitions of monetary aggregates, has been analyzed in this paper. Quarterly Data from 1996Q2 to 2009Q2, for various monetary aggregates, interest rates, exchange rates, stock prices and GDP is in use. The cointegration tests, error correction mechanism, Granger causality and CUSUM tests has been applied for empirical analysis. The estimated results disclose the existence long-run and short-run relationship among the variables. Unidirectional Granger causality found from GDP and Stock Prices to monetary, new monetary as well as liquidity aggregates. Also similar result repeated from interest rates to money demand functions. The CUSUM and CUSUMQ tests support the existence of stability of each money demand functions. All the three variables, except exchange rate, affect the money demand of both types of specification.

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