Demand for money under low interest rates in Japan
Keywords:Demand for Money, Exchange Rate, Japan, Monetary Policy, Volatility.
AbstractIn both theoretical and empirical fields of economics, demand for money has been received much attention in the past. In Japan, deflation has been prevailed more than 20 years, and there is some possibility that the Bank of Japan’s monetary easing policy, which expands money to markets by buying government bonds, has had a significant influence apart from traditional factors. Also, exchange rates for Japanese currency have fluctuated greatly recently because of the introduction of unprecedented monetary policy in the 2010s that may have affected macroeconomic variables and the money demand function in Japan. Using Japanese experience with deflation over last two decades, I provide strong evidence that recent demand for money is affected by real GDP, exchange rates, and economic volatility; however, interest rates and consumer prices have not impacted demand for money. The results also show that introduction of the drastic quantitative easing policy changed the demand function for money.
Abdullah, H., Ali, J., & Matahir, H. (2010). Re-examining the demand for money in Asean-5 countries. Asian Social Science, 6(7), 146–155. http://dx.doi.org/10.5539/ass.v6n7p146
Abdulkheir, A. Y. (2013). An analytical study of the demand for money in Saudi Arabia. International Journal of Economics and Finance, 5(4), 31–38. http://dx.doi.org/10.5539/ijef.v5n4p31
Anusic, Z. (1994). The determinants of money demand in Croatia and simulation of the post-stabilization period. Croatian Economic Survey, 2, 85–120.
Arize, A. C. (1994). An econometric analysis of money demand in Taiwan, 1950–1989. American Economist, 38(1), 27–35. http://dx.doi.org/10.1177/056943459403800104
Arize, A., & Nam, K. (2012). The demand for money in Asia: some further evidence. International Journal of Economics and Finance, 4(8), 59–71. http://dx.doi.org/10.5539/ijef.v4n8p59
Avouyi-Dovi, S., Drumetz, F., & Sahuc, J. G. (2012). The money demand function for the Euro area: Some empirical evidence. Bulletin of Economic Research, 64(3), 377–392. http://dx.doi.org/10.1111/j.1467-8586.2010.00388.x
Bahmani, S. (2013). Exchange rate volatility and demand for money in less developed countries. Journal of Economics and Finance, 37(3), 442–452. http://dx.doi.org/10.1007/s12197-011-9190-y
Bahnami-Oskooee, M. &, Bohl, M. T. (2000). German monetary unification and the stability of the German M3 money demand function. Economics letters, 66(2), 203–208. http://dx.doi.org/10.1016/S0165-1765(99)00223-2
Bahmani-Oskooee, M., & Malixi, M. (1991). Exchange rate sensitivity of the demand for money in developing countries. Applied Economics, 23(8), 1377–1384. http://dx.doi.org/10.1080/00036849100000060
Bahmani-Oskooee, M., Miquel-Angel, M., & Niroeemand, F. (1998). Exchange rate sensitivity of the demand for money in Spain. Applied Economics, 30(5), 607–612. http://dx.doi.org/10.1080/000368498325598
Bahmani-Oskooee, M., & Pourheydarian, M. (1990). Exchange rate sensitivity of the demand for money and effectiveness of fiscal and monetary policies. Applied Economics, 22, 1377–1384. http://dx.doi.org/10.1080/00036849000000029
Bahnami-Oskooee, M., & Rehman, H. (2005). Stability of money demand function in Asian developing countries. Applied Economics, 37(7), 773–792. http://dx.doi.org/10.1080/0003684042000337424
Choi, W. G., & Oh, S. (2003). A demand function with output uncertainty, monetary uncertainty, and financial innovations. Journal of Money, Credit, and Banking, 35(5), 685–709. http://dx.doi.org/10.1353/mcb.2003.0034
Craig, H. (1982). Exchange rate determination and the demand for money. The Review of Economics and Statistics, 64(4), 681–686. http://dx.doi.org/10.2307/1923952
Cuthbertson, K., & Bredin, D. (2001). Money demand in the Czech Republic since transaction. Journal of Policy Reform, 4(4), 271–290. http://dx.doi.org/10.1080/13841280108523422
Dobnik, F. (2013). Long-run money demand in OECD countries: What role do common factors play? Empirical Economics, 45(1), 89–113. http://dx.doi.org/10.1007/s00181-012-0600-6
Dogru, B., & Recepoglu, M. (2013). Dynamic analysis of money demand function in Turkey. International Journal of Economics and Finance, 5(9), 20–27. http://dx.doi.org/10.5539/ijef.v5n9p20
Dreger, C., R. Hans-Eggert, R., & Roffia, B. (2007). Long-run money demand in the new EU member states with exchange rate effects. Eastern European Economics, 45(2), 75–94. http://dx.doi.org/10.2753/EEE0012-8775450204
Gunnar, J. (2001). Inflation, money demand, and purchasing power parity in South Africa. IMF Staff Papers, 48(2), 243–265.
Hueng, C. J. (1998). The demand for money in an open economy: Some evidence for Canada. North American Journal of Economics and Finance, 9(1), 15–31. http://dx.doi.org/10.1016/S1062-9408(99)80078-3
Hussain, A. A. (2007). The narrow money demand behavior in Indonesia, 1970–2005. ASEAN Economic Bulletin, 24(3), 320–338. http://dx.doi.org/10.1355/AE24-3C
Hussain, M. N., & Wijeweera, A. (2013). Estimation of the money demand function in a heterogeneous panel for selected Asian countries. Indian Journal of Economics and Business, 12(1), 23–35.
Jiranyakul, K., & Opiela, T. P. (2014). Instability of money demand: Recent evidence for Thailand. Modern Economy, 5(8), 907–913. http://dx.doi.org/10.4236/me.2014.58083
Khan, R. E. A., & Hve, Q. M. A. (2013). Financial liberalization and demand for money: A case of Pakistan. The Journal of Developing Areas, 47(2), 175–198. http://dx.doi.org/10.1353/jda.2013.0034
Kjosevski, J. (2013). The determinants and stability of money demand in the Republic of Macedonia. Journal of Economics and Business, 31(1), 35–54.
Klacek, J., & Smidkova, K. (1995). The demand for money function: The case of the Czech economy. Working Paper Series 41, Czech National Bank Praha.
Klos, B., & Wrobel, E. (2011). The monetary transmission mechanism and the structural modelling of inflation at the National Bank of Poland. National Bank of Poland.
Kumar, S., Chowdhury, M. B., & Rao, B. B. (2013). Demand for money in the selected OECD countries: A time series panel data approach and structural breaks. Applied Economics, 45, 13–15. http://dx.doi.org/10.1080/00036846.2011.637897
Odularu, G. O., & Okunrinboye, O. A. (2009). Modeling the impact of financial innovation on the demand for money in Nigeria. African Journal of Business Management, 3(2), 39–51.
Paudel, R. C., & Perera, N. (2013). Does financial liberalisation boost money demand? Evidence from Sri Lanka. Indian Journal of Economics and Business, 12(2–4), 223–242.
Rao, B., & Singh, R. (2005). Cointegration and error correction approach to the demand for money in Fiji. Pacific Economic Bulletin, 20(2), 76–82.
Rao, B. B., & Kumar, S. (2011). Is the US demand for money unstable? Applied Financial Economics, 21, 1263–1272. http://dx.doi.org/10.1080/09603107.2011.568395
Sarwar, H., Sarwar, M., & Waqas, M. (2013). Stability of money demand function in Pakistan. Economic and Business Review, 15(3), 197–212.
Singh, R., & Kumar, S. (2010). Some empirical evidence on the demand for money in the Pacific island countries. Studies in Economics and Finance, 27(3), 211–222. http://dx.doi.org/10.1108/10867371011060045
Tang, T. C. (2007). Money demand function for Southeast Asian countries: An empirical view from expenditure components. Journal of Economic Studies, 34(6), 476–496. http://dx.doi.org/10.1108/014435807108309 52
Yu, H. (2008). Impacts of the exchange rate and the foreign interest rate on the Argentine money demand function. Applied Economics Letters, 15(1), 35–39. http://dx.doi.org/10.1080/13504850600706685
Zouhar, Y., & Kacemi, A. (2008). Financial liberalisation and money demand in Morocco. Working Paper, 389, Economic Research Forum.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) after official publication, as it can lead to productive exchanges as well as greater citation of published work (See The Effect of Open Access).