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Research Objective

To examine the effects of monetary and economic uncertainties on money demand in a sample of Asian economies, considering both short-term and long-term impacts, and to provide policy implications for maintaining stability and facilitating effective monetary management.

Methodology

The study utilizes a comprehensive analytical methodology encompassing both linear and non-linear Autoregressive Distributive Lag (ARDL) models. Data spans from 1990 to 2023 and is sourced from the International Monetary Fund (IMF), World Development Indicators (WDI), and International Financial Statistics (IFS). Stationarity of data series is evaluated using the Augmented Dickey-Fuller (ADF) test. Economic uncertainty (VGDP) is quantified using a five-variable index based on government expenditure, imports, exports, remittances, and foreign direct investment, calculated using a rolling technique. Monetary uncertainty is gauged using the M2 measure of nominal money supply, with 12-month average fluctuations.

Methodology Flowchart

                        graph TD
    A["Data Collection 1990-2023"] --> B["Data Preprocessing & Stationarity Testing"];
    B --> C["Model Selection"];
    C --> D["Linear ARDL Model Estimation"];
    C --> E["Non-linear ARDL Model Estimation"];
    D --> F["Short-term & Long-term Analysis"];
    E --> F;
    F --> G["Diagnostic Tests"];
    G --> H["Interpretation of Results"];
    H --> I["Formulate Conclusions & Policy Implications"];                    

Discussion

The study highlights the complex and often asymmetric relationship between economic and monetary uncertainties and money demand in Asian economies. The findings suggest that while traditional determinants like interest rates and exchange rates continue to play a role, uncertainty measures have a discernible impact, particularly in the short term. The mixed results across countries underscore the need for context-specific analyses and tailored policy interventions. The research emphasizes that policymakers must consider these uncertainties when formulating monetary policies to ensure stability and manage inflation effectively.

Key Findings

In the short term, both monetary and economic uncertainty significantly influence money demand across various Asian countries, with differing directional impacts. For instance, economic uncertainty has a positive significant impact in Indonesia and India, but a negative significant impact in Singapore and the Philippines. Monetary uncertainty generally shows a negative correlation with money demand, except in India. In the long term, economic uncertainty has a positive and significant correlation with money demand in Indonesia and Japan, while monetary uncertainty shows a positive long-term impact on money demand in Indonesia, Japan, the Philippines, and Singapore.

Conclusion

The study concludes that both monetary and economic uncertainty significantly impact money demand in Asian countries, with varying short-term and long-term effects across nations. The findings underscore the importance of judicious monetary policies that address inflation and economic uncertainties to stabilize money demand in Asia's dynamic economic landscape.

Fact Check

1. Timeframe: The study spans the extensive timeframe from 1990 to 2023. (Confirmed in Abstract and Methodology)
2. Data Sources: Data is sourced from the International Monetary Fund (IMF), World Development Indicators (WDI), and International Financial Statistics (IFS). (Confirmed in Methodology)
3. Models Used: Both linear and non-linear ARDL models are employed. (Confirmed in Abstract and Methodology)

Mind Map