Disequilibrium In Money Market Research Articles

International reserves and domestic money market disequilibrium

Purpose The purpose of this paper is to examine the likely determinants of the demand for official international reserves (hereafter reserves) for India and China in the long run in a basic buffer stock model. The paper also examines the role of domestic money market disequilibrium in the short-run demand for official reserves for both the countries in a dynamic synthesis model. Design/methodology/approach The study used quarterly data for the time period 1993:Q1–2015:Q4. The long-run model is being estimated by following the Frenkel–Jovanovic (1981) buffer stock model and includes the determinants such as transaction motive variable (GDP or Imports), opportunity cost variable (domestic interest rate), precautionary motive variable (volatility of reserves) and exchange rate. The study also examined the role of domestic money market disequilibrium in addition to the above variables in the short-run reserve demand model. The money market disequilibrium term is expected to be negative and significant in the short run. The study employed autoregressive distributed lag bound testing approach to co-integration and unrestricted error-correction model (UECM) approach developed by Pesaran et al. (2001) for estimating the long-run and short-run models, respectively. Findings The co-integration test suggests the existence of long-run relationship between international reserves and its determinants. In the long run, all the variables are statistically significant with expected sign, except domestic interest rate variable for China. It is also found that, the money market disequilibrium term in the short run is negative and significant which validates that an excessive money demand (supply) induces an inflow (outflow) of international reserves for both India and China with a lag of four quarters. The recursive residual tests (CUSUM and CUSUMSQ) confirm the stability of both long-run and short-run reserve demand models. Practical implications The findings and policy implications of this study may be useful for the policy makers of the similar emerging economies for designing money and currency policies. Originality/value This paper is a comparative study which systematically analyzed the reserve demand behavior of the two emerging economies India and China. The study integrates the domestic money market with the international reserve demand behavior for these two economies.

Demand for Money, Financial Innovation and Money Market Disequilibrium

This study examines the impact of financial innovation on money demand and to analyze the impact of money market disequilibrium on output gap using co integration modeling. After the confirmation of ADF result we use the cointegration technique for our first model and concluded that both the numbers of ATM and cards are negatively related to the demand for money. So in order to control the money demand we should increase the ATMs. The results also confirm that there exists a quantity theory with the inclusion of financial innovation in the money demand function. Our second model is related to the money market disequilibrium and the output gap. The findings of this second model shows that money market disequilibrium leads to wider the output gap.

Oil Windfalls, Fiscal Policy and Money Market Disequilibrium

In this paper, we base our policy analyses and simulations on three different specifications of a DSGE model developed for a CIS oil rich country and check the impact of the oil windfalls. The first proposed specification is a classical one with a Taylor rule and the second one is a recently new specification with a money growth rule. Beside two familiar specifications, we propose a new specification which assumes a temporary money market disequilibrium in the short run. This disequilibrium is a result of the fiscal misbalance and (non-primary) pro-deficit policy pursued by the fiscal authority. We show that all three specifications allow the fiscal authority to act as the main actor in propagating and amplifying the effects of the oil price shocks to the rest of the economy. When an oil shock hits the economy, its first round effect operates through oil fund transfers to the budget. The second round effects result from an increase in government consumption and government investment expenditures, which augments public capital affecting total factor productivity (TFP) and production, as well as the aggregate demand. We also find that despite significant differences, all three specifications demonstrate similar response dynamics.

India's demand for international reserve and monetary disequilibrium: Reserve adequacy under floating regime

The main aim of this study is to investigate India's demand for international reserve by focusing on the role of national monetary disequilibrium and to present new benchmarks for assessing the adequacy of international reserves. We assessed India's position in terms of reserve adequacy and found that India is well placed and has sufficient stock of international reserves to meet the minimum adequacy requirements. Also, the results reveal that the central bank is holding substantial excess reserves and the related opportunity cost (1.5% of GDP) appears to be quite considerable. Further, the estimates of reserve demand function suggest that scale of foreign trade, uncertainty and profitability considerations play significant role in determining India's long-term reserve demand policies. More importantly, validating the monetary approach to balance of payment, our results show that national monetary disequilibrium does play a crucial role in short-run reserve movements. An excess of money demand (supply) induces an inflow (outflow) of international reserves with an elasticity of 0.56 which also implies that Reserve Bank of India responds to correct the domestic money market disequilibrium; and did not just leave it completely on the mercy of reserve inflows.

Modeling Base Money Demand and Inflation for the Turkish Economy

Bu calismada, Turkiye ekonomisi icin bir rezerv para talebi modeli olusturulmaya calisilmaktadir. Ucer aylik gozlemleri dikkate alan 1987Q1-2007Q3 inceleme donemi icin cagdas cok degiskenli es-butunlesim yontemi kullanilarak elde ettigimiz bulgular para talebinin reel gelir esnekliginin birim degerden oldukca yuksek oldugunu gostermekte ve ekonomide reel gelir surecindeki artisla ilgili olarak suregelmekte olan parasallasma olgusunun varligini ifade etmektedir. Reel para tutumlari karsisindaki en onemli almasik maliyet unsuru yerli paranin doviz kuru karsisindaki beklenen deger kaybi olarak gozukmektedir. Bu tur bir bulguysa iktisadi birimler parasal buyukluk tutumlariyla ilgili gudulerini belirlerken ekonomide yerlesik para ikamesi olgusunun onemini ortya koymaktadir. Ayrica, calismada elde edilen kritik bir bulgu para piyasasi dengesizlik kosullari altinda meydana gelen para talebi fazlasi uzerine kosullandirilmis dinamik bir hata duzeltme modelini gereksiz kilacak bir sekilde yurtici enflasyonun para talebi degisken uzayinda zayif dissal bir yapiya sahip olmasidir.

Money demand elasticity, effective money supply and money market disequilibrium: “China’s Puzzle” and long-term excessive liquidity

Chinese excessive liquidity problems are more serious than other main countries. The upgrading industrial structure and the increasing opening degree lead to the excessive money demand and higher money demand elasticity. Bad credits weaken money supply effectiveness and lead to illusive increasing money. We set up the money market disequilibrium model under the condition of the excessive liquidity. The imbalance between money demand and money supply is the key of Chinese excessive liquidity problems.

Výroba, kapitál a dynamika cen ve světle Kaldorova modelu

Nasim cilem je vytvořit dynamický spojitý model male otevřene ekonomiky s jednoduchou strukturou a s minimalnim poctem nelinearit, který by generoval aperiodicke oscilace cen. Zaklad tohoto modelu je převzat s tradicniho dynamickeho Kaldorova modelu. Model je vytvořen ctyřmi diferencialnimi rovnicemi popisujici dynamiku produkce a kapitalu, vývoj cenove hladiny a vývoj ocekavane inflace. Analýzu provadime na numericky kalibrovanem modelu. Z hlediska složitosti je zajimave řeseni ctyř-rovnicoveho modelu, ktere vykazuje chaoticke vlastnosti, což je indikovano kladným Ljapunovovým exponentem.

Produkt, kapitál a cenový pohyb v jednoduchém modelu uzavřené ekonomiky

A purpose of this paper is to formulate a continuous dynamical model for a small closed economy with a simple structure and with a minimum number of non-linearities. A basis of this model is developed from dynamical Kaldorian model. Variables in the modified dynamical Kaldorian model are in a logarithm scale. A form of the logistic function is used for non-linear connections in this model. The model is formed by four differential equations. First two equations create relatively closed sub-model generating both production and capital stock trajectories. Two other equations describe the price level dynamics as a consequence of money market disequilibrium and continuously adaptive expectation of inflation. Our investigation is firstly aimed to investigate a dynamics of the production and capital stock. Secondly to compute Ljapunov exponents for a simple model of closed economy showing its a chaotic behavior. Simulation studies are performed on numerical calibrated model.

Applying the seasonal error correction model to the demand for international reserves in Taiwan

A dynamic demand function for international reserves based on the seasonal difference is derived. Our model of using seasonal difference distinguishes the present study from previous studies in three aspects. First, the dependent variable is seasonally differenced instead of being first order differenced. Next, the local money market disequilibrium included is also in fourth difference form. Finally, given the existence of stochastic seasonality, a new model, using a seasonal error correction rather than the conventional error correction, is specified and estimated. Based on this new specification, the results yielded are more sensible than those of using a differenced model.

A COINTEGRATION APPROACH TO MONETARY TARGETING IN AUSTRALIA*

Cointegration analysis between real money (M3), output, interest rates and the effective exchange rate indicates the existence of a cointegrating vector which can be used to stabilize nominal GDP in the long run. An interesting aspect of the empirical investigation is the evidence that the long term interest rate adjusts to clear disequilibrium in money market. This suggests that carefully applied monetary targeting may still be a viable policy in Australia. Copyright 1993 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

The Sudan Demand for International Reserve: A Case of a Labour-Exporting Country

An empirical analysis of the demand for international reserves in the Sudan is presented, based on the error-correction model. This model is parametrically rich enough to allow the division of the effects into long-run influences, short-term adjustments, and proportional equilibrium impacts. Beside addressing conventional issues in reserve demand literature, the model explicitly incorporates the impact on reserve demand of remittances transferred by Sudanese nationals working abroad and the impact due to money market disequilibrium. The demand function is found to be stable and characterized by constant returns to scale. Copyright 1990 by The London School of Economics and Political Science.

Monetary Approach to Balance of Payments: The Evidence on Reserve Flow from Pakistan

The monetary approach to balance-of-payments theory suggests that balance of payments defecits are related to disequilibrium in the international money market and, as such, involve a flow of international reserves. A cross-section study of 39 IDCs, including Pakistan, validates the MABOPs theory for the analySiS of balance of payments of these countries despite the absence of underlying assumptions in these countries. It is contended that while it may be possible to obtain significant'results on a cross-section basis, the individual country data for many of these IDes may not validate the MABOPs theory, mainly due to the absence of underlying assumptions, due to significantly heterogenous economic structures in many of these countries, and due to the common prevalence of restrictive financial policies in a large number of LDCs. In this paper the propositions of the MABOPs theory are tested for Pakistan only, using the same model as applied to 39 LDCs on a crosssection basis. The results show that reserves movement in Pakistan cannot be explained by the version of MABOPs theory.

Monetary Equilibrium and Balance-of-Payments Adjustment: An Empirical Test of the U.S. Balance of Payments, 1951-73

SINCE THE 1960s, there has been a renewal of interest in classical theory of balance of payments, with important contributions by Johnson [4] and Mundell [7, 8]; resulting modern version is known as the monetary to balance-of-payments theory. The pioneering work of Johnson and Mundell has been followed by a number of theoretical refinements and by several empirical tests of theory for small countries [2]. This paper presents an empirical test of a large country case, viz. United States in period 1951-73. Section 1 sets out a simple two-area model of world from which U.S. balance-ofpayments equation is derived. The empirical tests of this equation are discussed in section 2. The monetary approach considers balance-of-payments deficits and surpluses as stock adjustments to money market disequilibrium, or as continuous flow disturbances resulting from ongoing stock adjustments. The most important assumptions

Equilibrium and disequilibrium in the international money market

Gleichgewicht und Ungleichgewicht auf dem internationalen Geldmarkt. —In diesem Aufsatz wird versucht, die Ursache des Ungleichgewichts auf dem internationalen Geldmarkt festzustellen. Kurzfristige Kapitalbewegungen erfolgen, weil die Zinsunterschiede auf dem Geldmarkt nicht in vollem Umfang die erwarteten WechselkursAnderungen vorwegnehmen. Die Faktoren, die die Unterschiede in den ZinssAtzen bestimmen, sind andere als diejenigen, die den erwarteten Wechselkurs bestimmen. Als Ursachen fur ein Ungleichgewicht auf dem internationalen Geldmarkt werden solche struktureller, monetArer und institutioneller Art ermittelt. Die ersten betreffen Abweichungen von der Kauf-kraft-ParitAt und «Fisher Open», die zweiten Abweichungen von «Fisher Closed» und die dritten beruhen auf der Begrenzung der Schwankungsbreite des Wechselkurses in einem entsprechenden WAhrungssystem.