EMPIRICAL ANALYSIS OF DETERMINANTS OF MONEY DEMAND FUNCTION IN NORTH MACEDONIA
Research Article
EMPIRICAL ANALYSIS OF DETERMINANTS OF MONEY DEMAND FUNCTION IN NORTH MACEDONIA
ABSTRACT
Money demand function exerts a central role in macroeconomic policy of countries. Therefore, the purpose of this research paper is to examine how money demand responds to changes in income, interest rate, inflation and exchange rate for the case of North Macedonia using the quarterly data for the period 1998-2021. The research methodology consists of cointegration analysis that is performed to investigate the long run relationship between variables. Also, a Vector Error Correction model (VECM) was used to analyze both the long run and short run response of money demand to changes in its potential determinants. The real money balance was modelled as dependent variable on real GDP, interest rate, inflation, and exchange rate. Based on the cointegration results there exists a long run relationship between used variables. The long run empirical results disclose that the real GDP is positively related to money demand, whereas interest rate, inflation and exchange rate are negatively related. The short run results indicate that the exchange rate is not a significant determinant, whereas real GDP, and inflation are the most influencing factors. The empirical results also show that money demand in North Macedonia is unstable. This result implies that the country should implement prudent monetary policy to deal with the ambiguity of money demand.
SADIKU, L.,
&
MADZOVA, V.,
&
SADIKU, M.,
(2022). EMPIRICAL ANALYSIS OF DETERMINANTS OF MONEY DEMAND FUNCTION IN NORTH MACEDONIA. Trends in Economics, Finance, and Management Journal, 4(2), 8-18. Arrival Date Posted By:https://tefmj.ibupress.com/articles/empirical-analysis-of-determinants-of-money-demand-function-in-north-macedonia
