Citation
Tan, Chin Sin
(2003)
Stock prices and long-run demand for money in three selected ASEAN countries : Indonesia, Malaysia, and Thailand.
[Project Paper Report]
Abstract
Earlier study on money demand has omitted the influence of stock prices in the
domestic demand for money especially in ASEAN countries. This paper investigates the
relationship between stock prices and the long-run money demand function in Indonesia,
Malaysia and Thailand using the multivariate cointegration and error correction model
methodology. Results show that stock prices playa significant role in the determination
of stationary long-run real M2 demand function in those countries. The direction and
magnitude of the role of stock price depends upon the country and also the sampling
period included. The results from the vector error correction model (VECM) provide
evidence of causality between the real money stock and the determinants of the money
demand (including real stock prices).
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