Money Function Research Articles

Structural Breaks and the Long-Run Stability of Demand for Real Broad Money Function in Nigeria: A Gregory-Hansen Approach

This study examines the long-run demand for real broad money function and its stability in Nigeria for the period from 1970 to 2012 inclusive. The study employs the Augmented-Dickey Fuller and Phillips-Perron tests for unit root, the Gregory and Hanson (1996a; 1996b) cointegration test to capture endogenous structural breaks in the cointegrating vectors of Nigerian long-run money demand function, cumulative sum of recursive residuals (CUSUM) and cumulative sum of recursive residuals squares (CUSUMSQ) tests for structural stability proposed by Brown et al. (1975). In estimating the canonical specification models, extended specifications are also presented. The results of the cointegration test suggest that demand for real broad money went through a regime shift in 2005. The results further confirm that there exists a long-run relationship amongst real broad money demand, real income, real domestic interest rate, real exchange rate, rate of inflation and foreign interest rate. However, the result of CUSUMSQ shows that the demand for money function is stable, but has undergone some temporary periods of instability. Hence, the apex bank in Nigeria can target the broad money (M2) aggregate to achieve macroeconomic objectives.

Money Demand Instability and Money Supply in Tunisia during Transition Period

The objective of this paper is to present an empirical analysis of Tunisian money demand, money supply and monetary policy before and after economic transitions. This work explores the instability in estimated money demand functions. We evaluate the role of financial innovations in stabilizing the demand money function over two periods. Results suggest that the monetary aggregate has become inadequate to justify the controllability of money supply by the Tunisian Central Bank during the period of 1987 to 2013. The empirical evidence presented in the paper, provides that Tunisia to be held account of the effect of financial liberalization for adopting the inflation targeting like alternative monetary strategy.

Uneasy Settlements: Reparation Politics and the Meanings of Money in the Israeli Withdrawal from Gaza

Negotiations about reparations tend to take the language of interests and to deal primarily with monetary compensation for disadvantaged groups. In such proceedings, aggrieved claimants are likely to make a variety of claims about the use of money to represent their experience, ranging from demands for increased compensation to rejections of the entire process altogether. This article draws attention to the communicative functions of money in the reparation process. It claims that actors may grudgingly agree to attach a monetary value to what they hold sacred, but simultaneously strive to preserve their sense of self‐worth and to elicit identification by raising moral critiques about the use of fiscal logic. To exemplify, the article focuses on the 2005 removal of Jewish‐Israeli settlers from Israeli‐occupied territories. It shows that settlers indeed demanded to be compensated fiscally for their lost property. At the same time, it shows that they raised objections to the use of fiscal logic in representing their experience and offered alternate logics of evaluation. The settlers resisted shame and devaluation through such competing logics, demanding that the state reaffirm a positive and embracing relationship with them despite its decision to evict them.

Estimating a Function of Real Demand for Money in Pakistan: An Application of Bounds Testing Approach to Cointegration

This paper attempts to model a real demand for money function of Pakistan. For this purpose we apply bounds test based cointegration technique using the time series data for the period 1973 to 2010. Our findings included three determinants: 1) real income and 2) foreign exchange contain positive relation as well as for both long run and short run dynamics they are the most significant factors of real demand for money. While we found real demand for money is negatively affected by 3) call money rate (is proxied by interest on deposit). However being in a short-run dynamic specification, money demand is found important with the elasticities of real income, exchange rate and call money rate being much smaller in the short-run than in long-run. Stability tests of the paper do not show any serious structural change in the model. As for both CUSUMSQ and CUSUM statistics, showing the critical value line within the bounds that present the model is stable. This model strongly recommends the real demand for M2 is an important monetary aggregate in terms of policy implications of our results including the suitability of the model in Pakistan.

Keynes and the endogeneity of money

A common feature of practically all strands of post-Keynesian theory is the notion that the money supply should not be considered as fixed independently of money demand in macroeconomic models. There are, however, at least two ways to postulate money endogeneity. The first, and perhaps best known today, is Kaldor's version, where the money supply curve is assumed to be horizontal at a given interest rate level. Kaldor's approach focuses on the means-of-payment function of money, stating that money is created when firms and individuals plan to acquire goods and services and borrow from banks the necessary amount of money to do it. Kaldor's emphasis is laid on central banks' behavior, assumed to be entirely accommodating of commercial banks' demands for the reserves required to satisfy the demand for bank loans. Keynes's version, based on his Treatise on Money and other essays, focuses on money in its liquid-store-of-wealth function. To propose that money is the most liquid asset in an entrepreneurial economy rules out the possibility of accepting a horizontal money supply curve, as it is shown in the paper. In fact, the first and most important contrasting concept in Keynes's approach in comparison to Kaldor's is the notion of liquidity. Keynes proposes a hierarchical view of liquidity, while Kaldor views liquidity as a ‘flat’ concept, where different assets exhibit different degrees of liquidity but their relationship is not hierarchical. A second contrast is that Keynes's view of endogeneity is based on a theory of how banks work instead of a theory of central banking. The paper develops Keynes's approach to money endogeneity along the lines just described and evaluates Kaldor's criticisms of Keynes's views.

Revisiting the demand for money function: evidence from the random coefficients approach

This article employs second-generation random coefficient (RC) modeling to investigate the time-varying behavior and the predictability of the money demand function in Taiwan over the period from 1982Q1 to 2006Q4. The RC procedure deals with some of the limitations of previous studies, such as unknown functional forms, omitted variables, measurement errors, additive error terms, and the correlations between explanatory variables and their coefficients. Our main findings are as follows. First, the empirical results indicate that the values of the elasticities in the RC estimation are significantly different from those in other studies, because of the use of coefficient drivers. Second, by observing the time-varying behavior of the coefficients, we find some specific points in our time profile of coefficients; that is, we can make an association with real events occurring in Taiwan, such as the financial liberalization after 1989 and the Asian financial crisis of 1997–1998. Finally, we compare the predicted values via the time intervals and different specifications and find that we should adapt different specifications of the RC model to estimate each interval.

Economic uncertainty and money demand stability in Turkey

PurposeThe purpose of this paper is to investigate whether the inclusion of uncertainty variables in the demand for money function can produce a stable relationship in Turkey.Design/methodology/approachThe stability of a money demand function is studied by testing parameter constancy of long‐run money demand function. To this end, the authors perform Nymblom type tests in the context of the Coingtegrated VAR methodology.FindingsThe findings show that inclusion of appropriate measure of uncertainty is necessary to estimate a stable and consistent money demand function for Turkey.Originality/valueThe empirical application of Nymblom type stability tests on cointegrated VAR money demand systems is very recent and to the authors' knowledge there has been no application of this methodology on emerging market economies. Therefore, this paper extends the literature to the emerging market economies.

Some ethical dilemmas of modern banking

How ethical have recent banking practices been? We answer this question via an economic analysis. We assess the two dominant practices of the modern banking system – fractional reserves and maturity transformation – by gauging the respective rights of the relevant parties. By distinguishing the legal and economic differences between deposit and loan contracts, we determine that the practice of maturity transformation (in its various guises) is not only ethical but also serves a positive social function. The foundation of the modern banking system – the holding of fractional reserves against deposits – is, however, problematic from economic, legal and ethical perspectives. Starting from a microanalysis of money's function, a reassessment of the current laws concerning the practice is encouraged, with the aim not only to rectify economic irregularities but also to realign depositors' rights with the obligations of the banking sector.

Financial Liberalization and Demand for Money: A Case of Pakistan

Literature in economics has identified many channels through which the financial liberalization may affect demand for money. There are evidences of stability as well as instability of demand for money due to financial development for developing economies. The objective of the current study is to examine the effect of financial liberalization on demand for money in Pakistan, i.e. whether financial liberalization has affected the demand for money or not. The issue is important as stable demand for money function is a prerequisite for formulating and operating monetary policy. To achieve the objective JJ cointegration and auto regressive distributed lag (ARDL) to the cointegration is employed to estimate the long-run equilibrium relationship between broad money M 2 and composite financial liberalization index along with other determinants of demand for money like gross domestic product, real deposit rate and exchange rate. In order to assess the stability of the model, the parameter constancy tests, i.e. recursive residuals, CUSUM and CUSUMSQ tests have been applied. The empirical results indicated that for broad money, there exists long-run money demand function. The financial liberalization, gross domestic product and real deposit rate positively affect the demand for money in the long as well as short-run.

Accounting for money: The legal presuppositions of money and accounting in ancient Greece

This paper aims to extend the purview of Business History to the ancient world by exploring the hypothesis that the development of money was stimulated by legal institutions which regulated payment of compensation for torts. The hypothesis was propounded by Philip Grierson who argued that the Germanic institution of wergeld established the earliest concept of value which underlies money's function as a unit of account. It considers Grierson's thesis in the context of archaic Greece. Although archaic Greek law developed differently from the Germanic wergeld, the legal-political sphere in Greece provides decisive impetus to the development of money and accounting. The article examines the role of commerce in archaic Greece and its relationship to monetisation.

MONEY NEXUS ANTARA PERKEMBANGAN FUNGSI UANG DAN DAMPAKNYA TERHADAP INFLASI DI INDONESIA

This research was discussed about the relationship between the development of the function of money fromthe stage of barter between two commodities, which are C and C’ and then become C-M-C’, when the moneyonce introduced. M - C - M’ happened when the businessman utilize the money (M) to produce commodityC, that will be sell to generate more money (M’). Last, the trading process of M - M’ that shown the capital orfi nancial market, just like the money or security market. The development of the function of money was shownby the changes of the money supply that weigh by the infl ation. Based on the data on 1990-2011 using theAnova and regression analysis, it is known that there were a difference between the currency money supply,demand deposits, and quasi money in Indonesia; The currency money supply didn’t have signifi cantly positiveeffect on the infl ation in Indonesia; The demand deposits didn’t have positive effect on the infl ation in Indonesia;and the quasi money have positive effect on the infl ation in Indonesia.Keywords: money nexus, currency money, demand deposits, quasi money, infl ation rate

CONSUMPTION, MONEY, INTRATEMPORAL SUBSTITUTION, AND CROSS‐SECTIONAL ASSET RETURNS

AbstractWhen utility is specified recursively as a function of both consumption and money, real money growth becomes a common factor in addition to the market excess return and consumption growth. The risk premium on the money factor is negative because money complements consumption and is positively related to the stochastic discount factor. Growth portfolios, short‐term loser portfolios, and long‐term winner portfolios tend to have higher loadings on the money factor and, thus, earn lower premiums on money.

The 1973-1978 workgroup on money of the journal 'Primo Maggio': an example of a pluralist critique of political economy

The 1973-1978 workgroup on money of the Italian Workerist journal Primo Maggio aimed to change the social role of political intellectuals by innovating the methodology of historiography, sociology, economics and political science. Its research focused on the Marxian analysis of money in relation to theoretical and political impulses provided by the monetary disorder of the 1970s. The material produced by the workgroup significantly helps in creating a logical scheme which pinpoints the functions of money in a capitalist system. A link between the workgroup's reflection and the modern theory of monetary circuit is suggested. It is also explained why such a group represents an example of pluralist critique of political economy.

Inseparability of Transaction Medium and Store of Value in the Role of Money

We analyze whether or not money can be circulated as a purely transaction medium in the search theory. We obtain the following result: unless the role of a store of value added to the function of money, money does not circulate and the economy degenerates into a barter economy.

Effect of money turnover rate on efficiency of national economy

Some provisions of an entirely new model of economic management having as its base “The Theory of High Efficient National Economy” are under consideration. The separate functions of money in the modern world are critically examined, and the contradictions among them are highlighted. It is demonstrated on how does the money turnover rate influences on the national economy efficiency. Ways to increase the rate of money turnover are shown. An absolutely new scheme of functioning the state monetary system is suggested.

If bad money is a collective bad, isn't good money a collective good?

During the current crisis we have discovered that a sick monetary and financial system and bad money are a collective bad. But if that is the case, then is it not reasonable to consider a sound monetary and financial system and good money to be a collective good? One of the reasons economists have not taken up this simple idea is that they have treated money as too homogenous a phenomenon – apart from the fact that economics has never been able to satisfactorily explain why money exists at all. In addition, the great majority of economists were unprepared for the world financial crisis and for the crisis of the euro because they have neglected three basic lessons of economics. By distinguishing different levels of interaction between economic and political agents, I will show that the idea of money as a private good (excludable and rival) with positive and negative externalities cannot fully account for either the positive or the negative effects of money. The concept of money as a collective good (non excludable and non rival) also has its defects. Money as a club good (excludable and non rival) comes closer to accounting for its peculiarities. But the global character of money leads me to conclude that it is better analyzed as a common pool good (non excludable and non rival), at least at the level at which attempts are undertaken to stabilize the world monetary and financial system. I apply Elinor Ostrom’s work on common pool resources to the analysis of money, and in particular of the euro and its vicissitudes. This throws more light on the nature and functions of money, and perhaps even on its existence. There is,however, one crucial difference between the problems of the sustainable natural resources that Ostrom studies and the sustainability of money. Natural resources, if not overused to complete exhaustion, may replenish themselves without human intervention, a process that may be stimulated by an adequate governance system. In the case of social or cultural resources such as money (which is a “social construct”), however, the governance system is part of the resource itself. This leaves intact, but complicates, the relationship between the stock or pool (which in the case of money is trust) that produces a flow of products (monetary and financial services). In order for the stock to be maintained and to continue yieldingits services (so: to be a renewable resource), continuous investments are needed.This is a central idea in Friedrich von Hayek’s capital theory, which may be used to improve Ostrom’s analysis. So, in order to return to a sound global monetary and financial system, and to save the euro, we should invest in trust. How this can be done is a largely unexplored domain, but I will show that the way European politicians have been acting during the euro crisis is exemplary of how not to solve this problem. Getting the global and the European monetary and financial systems back on track is a complex problem of collective action, which - as Ostrom has shown - is at the centre ofthe governance of all common pool goods. The story of the euro is a perfect illustration.

Hunger for Money

The haphazard process of maize market liberalization produces conditions for maize to assume a money function in the Tonga-speaking region of Mayindi, Zambia. Drawing on ethnographic data, this article analyzes the ways in which members of polygynous households in Mayindi attempt to navigate the intra-household tensions provoked by the use of a staple food as a form of money. In an effort to reconcile these tensions, co-wives in many polygynous households now distribute maize equally among themselves, regardless of how many people each individual woman is responsible for feeding. I argue that while this form of maize distribution leaves some members of the household food-insecure, it also serves to maintain critical aspects of women's social identities as mothers to their children and members of their matrilineage.

Broad Money Demand in Mauritius with Implications for Monetary Policy

This paper employs ECM approach to investigate the long run and short-run components of the broad money demand function in Mauritius for the period spanning from 2000 to 2009. To the author’s best knowledge, no study has been undertaken over broad money in Mauritius since 1992, with an update being long overdue. Results show that M2 is positively elastic with respect to GDP, with the elasticity coefficient revolving around 2.80%, clearly showing that Mauritius is not endowed with a fully developed financial system with monetization moving faster than output. The low adjustment coefficient for VECM furthers substantiates the fact that there is indeed a lack of alternative assets to M2 and above all fully justifies the transition from monetary targeting to interest rate targeting. Evidence is found in favor of foreign asset substitution but only through the exchange rate channel. Findings further show that the local stock market does not act as a substitute to local money holdings. Overall, the study points out a rather stable demand for money function in Mauritius so that the monetary authority can contemplate using it as a complementary tool but chiefly for long-run policy assessments.

‘Philosophie économique’ and money in France, 1750–1776: the stakes of a transformation

The developments of political economy in France between 1750 and 1776 did not allocate a central place to the discussion of the nature and functions of money. The object of this paper is to account for this fact and what it denotes: the disappearance of money as a central object in the discourse on economy and society. We outline the context of this mutation in relation to the ideas of Montesquieu, Gournay and Forbonnais. The actors of this change will then be considered: the promoters throughout these years of ‘philosophie économique’ i.e. Quesnay, the Physiocrats and Turgot. An analysis of these authors, together with a founder of this perspective, Boisguilbert, will show how the status and role of money was modified and illuminate the issues involved. This transformation can be related to the affirmation of a new political discourse whose foundations are rooted in economic interest.

Soft currencies, cash economies, new monies: past and present.

Current variation in the forms of money challenges economic anthropologists and historians to review theory and comparative findings on multiple currency systems. There are four main sections to the paper devoted to (i) the present continuum of hard to soft currencies as an instance of multiplicity, including discussion of different combinations of the classic four functions of money, especially the relationship between store of value and medium of exchange; (ii) the logic of anthropological inquiry into multiple currency economies; (iii) the case of the monies of Atlantic Africa, applying the analytics of exchange rates as conversions to African transactions; and (iv) the return to economic life in a present day Nigerian economy lived in soft currency and cash. The paper identifies five findings that suggest foci for future research. (i) The widespread occurrence of conversions, which bring together ranking principles within transactions. (ii) Several types of positional ranking ranging from simple stepwise ordinal scales to iconic ordinality that creates a parabolic curve of value. (iii) Fictional units of account that serve to mediate both the memorization of nonreductive transactions and their nature as conversions. (iv) The importance of the temporal reach of what constitutes wealth: over the short run, the life span, intergenerational succession, and in (legal) perpetuity (as for corporate and sovereign debts and specified assets). (v) The social niches in which these qualities are brought together in transactional regimes. In conclusion, the paper returns to the exchange function of cash, soft currencies, and new money forms.