Role of Advertising Expenditure as an Influential Non-traditional Regressor in Russia’s Money Demand Specification

Lee-Chea Hiew,Chin-Hong Puah,Mohammand Affendy Arip,Mei-Teing Chong

doi:10.5430/ijfr.v10n6p232

Lee-Chea Hiew, Chin-Hong Puah + Show 2 more

Open Access

https://doi.org/10.5430/ijfr.v10n6p232

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Abstract

The term advertising refers to the strategy that affects consumer behaviour and induces higher household final consumption expenditure (HFCE), which is associated with incredibly demanding for money upon transaction usages and a reduction in search costs. The model of money demand that is stable, reliable and well defined is crucial for central banks in formulating their monetary policy to minimise the gap between the supply and demand of money. Hence, this paper examines the influence of expenditure in advertising (ADEX) towards the level of demand for money among the households in Russia. An approach known as Autoregressive distributed lag (ARDL) is opted to model the money demand function (MDF) of Russia and nine years of quarterly data from 2008 to 2016 have been used in the estimation. Empirical findings reveal that ADEX not only positively influences the Russian’s money demand in long term, its MDF also becomes more superior when the ADEX has been added. As such, this study suggests that ADEX can be taken into account as a non-traditional explanatory variable in the formulation of a stable and well-specified MDF for the case in Russia.

Highlights

The economic dynamic for a country’s development is formed with denoting to the practice of monetary policy, the level of demand and supply for money and the measure of monetary aggregates
This study found supportive evidence on the inclusion of advertising expenditure (ADEX) in formulating the money demand function (MDF) in Russia
Empirical findings indicate that ADEX can positively influence the level of money demand in long-run for the case of Russia

Summary

Introduction

The economic dynamic for a country’s development is formed with denoting to the practice of monetary policy, the level of demand and supply for money and the measure of monetary aggregates. The question of whether to carry on with inflation targeting or return to the manipulation of monetary targeting as the monetary policy strategy must be pondered if a stable MDF is to be found with the augmented of this non-traditional regressor, the advertising expenditure (ADEX) In view of these circumstances, numerous researches have been studied to identify factors affecting the money demand in attempts to devise a stable, well-defined and predictable MDF. This information is crucial for central banks in formulating their monetary policy to reduce the difference between the level of money supply and demand.

Literature Review

Data Descriptions and Methodology

Estimation of Long-Run Coefficients Using the ARDL Approach

Performance Evaluation

Conclusion