Determining Factors for Malaysian Money Demand Function

Abstract

Our study based on determining factors that affect the function of demand for money in the Malaysian economy over 1970-2018 based on time-series data collected from WDI (World Bank). We tacitly include real CPI, real interest rate, financial innovation, real GDP, and implied the ARDL Bound tests. Derived from empirical evidence, we revealed that financial innovation has quite a significant and positive impact on the short-term. In contrast, real GDP has a negative and meaningful relationship with real money demand function in Malaysia. The official real exchange rate has a positive and significant relationship with real-money demand, with an increase in the real exchange rate of one unit, boosting the long-term function with money demand by 0.97. Negative and significant relationships revealed that by raising 1% real GDP dissecting to decrease real money demand by 0.6395 in the Malaysian economy. Eventually, real money demand anticipated 13.0796 once all independent variable in the Malaysian economy is zero.

Keywords

• real money demand
• financial innovation
• rgdp