On money demand in Vietnam

The demand for money is likely to depend upon the exchange rate in addition to the interest rate and the level of income; this would slightly reduce the effectiveness of a given change in the quantity of money, and slightly increase the effectiveness of fiscal policy on income and employment under flexible exchange rates, while, of course, it has no significance in the case of fixed exchange rates.

Robert Mundell (1963).

NEW WORKING PAPER: This empirical investigation aims at exploring the determinants of money demand in Vietnam by using both linear and nonlinear autoregressive distributed lags models over the period spanning from the third quarter of 2000 to the first quarter of 2018. Our findings can be summarized as follows: firstly, when the shock is symmetric (i.e. a permanent nominal appreciation of one percent), the money demand increases by 3.7 percent in the long term. Secondly, when the shock is asymmetric, for a permanent nominal appreciation of one percent, we observe an increase of 15.6 percent in the money demand. Whereas, for a permanent nominal depreciation of one percent, we observe a decrease of 7.4 percent in the money demand. These results are consistent with symmetry tests and lead us to think that asymmetries occur mainly in the short run and are transmitted to the long run.

Feel to download, share or comment the following working paper:

  • Sy-Hoa Ho, Jamel Saadaoui, Symmetric and Asymmetric Effects of Exchange Rates on Money Demand: Empirical Evidence From Vietnam. SSRN working paper 3507120 (2019): https://dx.doi.org/10.2139/ssrn.3507120.

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