Tuck Cheong Tang

Money demand function for Southeast Asian countries: an empirical view from expenditure components.

Purpose - The purpose of this paper is to empirically investigate the money demand function for five Southeast Asian countries, viz. Malaysia, Thailand, Singapore, the Philippines, and Indonesia. Design/methodology/approach - The ARDL modeling approach is employed because of its ability to incorporate both I(0) and I(1) regressors. Findings - The results reveal that real M2 aggregate, real expenditure components, exchange rate, and inflation rate are cointegrated for Malaysia, the Philippines, and Singapore. The statistical significance of real income components suggests the bias of using single real income variable in money demand (M2 aggregate) specification of both short- and long-run. The CUSUM and CUSUMSQ tests show that the estimated parameters are stable for the five Southeast Asian economies, except for Indonesia which is based on short-run specification. Practical implications - These findings are important for policy makers in formulating monetary policy. Originality/value - Besides conventional determinants of money demand such as exchange rate and interest rate variables, this study considers the major components of final expenditure (GDP) – final consumption expenditures (private and government sectors), expenditures on investment goods, and exports as scale variables.

The effects of exchange rate variability on Malaysia's disaggregated electrical exports

Purpose - This paper aims to examine the influence of exchange rate variability on the demand for Malaysias top five electrical exports as classified by Standard International Trade Classification (SITC) product groups. Design/methodology/approach - The autoregressive distributed lag (ARDL) modelling approach to co-integration is employed in order to estimate the influence of exchange rate variability on export demand. Findings - The empirical results indicate that foreign income and prices are important determinants of export demand for all of the five electrical exports, in both the long run and the short run, over the sample period 1990-2001. More interestingly, this paper supports the view that exchange rate variability has an adverse effect on Malaysias electrical exports. Research limitations/implications - One limitation of the study is the appropriateness of the ARDL modelling approach to examine the influence of exchange rate variability (which is stationary, Practical implications - This paper is important to policymakers for the design of both exchange rate and trade policies in order to promote export growth, which could lead to Malaysias transition towards high-technology industrialisation. Originality/value - This paper examines the influence of exchange rate variability on the demand for Malaysias top five electrical exports as classified by SITC product groups, information which is not available in the existing literature.

A cointegration analysis of Malaysian import demand function: reassessment from the bounds test

This paper presents an empirical analysis of the aggregated import demand behaviour for Malaysia. The study involved a small sample of annual data from 1970 to 1998. To estimate the long-term relationship between import demand, and its determinants, namely income and relative prices, a robust estimation method known as the Unrestricted Error Correction Model - Bounds Test Analysis was used. The results show that import volume, income and relative prices are cointegrated. The estimated long-run elasticites of import demand with respect to income and relative prices are 1.5 and -1.3 respectively. This implies that monetary, fiscal and exchange rate policies can be used as instruments to maintain favourable trade balance.

Bank Lending and Inflation in Malaysia: Assessment from Unrestricted Error-Correction Models

The paper estimates inflation models for Malaysia by considering the influence of bank lending. The unrestricted error-correction model (UECM) proposed in Pesaran et al. (2000) was employed as being appropriate for small sample analysis such as the present study which covered annual data from 1973 to 1997. The results of ‘bounds’ tests confirmed a long-run equilibrium relationship between inflation and its determinants, namely import price, money supply (M3), bank credit and real income. The estimated UECMs revealed that the important factors in the Malaysian inflation process are import price and real-income variables. It was found that concurrent fiscal policies had a major influence on the impact of the depreciation of the naira on inflation. The UECMs appear to perform well and to provide an appropriate framework for forecasting the Malaysian inflation behaviour.

An empirical analysis of China's aggregate import demand function

Abstract This study uses the cointegration concept to analyze the long-run relationship of Chinas aggregate import demand function for the period 1970–1999. The conventional specification for the import demand function reveals that the volume of imports demanded responds to domestic activity and relative prices. This study considers four definitions of domestic activity, namely gross domestic product (GDP), GDP minus exports [ IMF Staff Pap. 45 (1998) 236], “national cash flow” [ Econ. Lett. 74 (2002) 265], and final expenditure components [ Appl. Econ. 21 (1989) 957]. The empirical results indicate a long-run equilibrium relationship between these measures of domestic activity and Chinas import demand. Overall, domestic activity and relative prices are inelastic in the long run. This study also highlights some policy implications.

Japanese aggregate import demand function: reassessment from the 'bounds' testing approach

Abstract This paper aims to ascertain the long-run relationship of Japanese aggregate import demand function over the period 1973–1997. The cointegration test used, bounds test procedure [J. Appl. Econ. 16 (2001) 289] is a recent test that based on the estimation of an unrestricted error-correction model (UECM). In contrary with previous studies [J. Policy Model. 16 (1994) 291; Jpn. World Econ. 13 (2001) 135], the bounds test confirms a long-run equilibrium relationship between quantity of imports, and its determinants namely real income and relative prices term. The estimated long-run income and price elasticities are 0.99 and −0.82, respectively.

Demand for M3 and expenditure components in Malaysia: assessment from bounds testing approach

This study examines the effects of various demand components of real income on money demand, M3 for a small open developing Asian economy. The disaggregated components of real income are final consumption goods, expenditure on investment goods, and exports. Other determinants are domestic interest rate and exchange rate. Using Malaysian annual data over the period 1973–1998, the results of the ‘bound’ test based on Unrestricted Error-Correction Model estimation (Pesaran et al., 2001), indicates a long run equilibrium relationship between demand of real M3 and its determinants. The results also highlight that different domestic demand components yields different effects on money demand behaviour. The results have important policy implications.

New evidence on export expansion, economic growth and causality in China

This paper extends the work by Mah (2005) on the causality between export expansion and economic growth in China by adding imports as additional variable in a trivariate framework. Interestingly, this paper has empirically found no long-run relationships among exports, real Gross Domestic Product, and imports. This paper further shows no long- and short-run causality, at least in Grangers sense, between export expansion and economic growth in China, but economic growth does Granger-cause imports in the short run.

A REASSESSMENT OF AGGREGATE IMPORT DEMAND FUNCTION IN THE ASEAN-5: A Cointegration Analysis

This study aims to reinvestigate the empirical evidence on the long-run relationship of aggregate import demand behavior for the ASEAN-5 founding nations. This study adopts the import demand equation that has been developed by Xu (2002). The results of bounds test (Pesaran et al., 2001) show the volume of imports, activity variable (national cash flow), and relative price of imports are cointegrated in Malaysia and Singapore. However, no empirical evidence supports that these variables are cointegrated in Indonesia, Thailand, and the Philippines. This study provides a relevant implication specifically that devaluation strengthens the balance of trade. Following the Marshall-Lerner condition, exchange rate policies such as devaluation, can used to improve trade balance in Malaysia, Singapore, the Philippines, and Thailand, but not in Indonesia.This study aims to reinvestigate the empirical evidence on the long-run relationship of aggregate import demand behavior for the ASEAN-5 founding nations. This study adopts the import demand equation that has been developed by Xu (2002). The results of bounds test (Pesaran et al., 2001) show the volume of imports, activity variable (national cash flow), and relative price of imports are cointegrated in Malaysia and Singapore. However, no empirical evidence supports that these variables are cointegrated in Indonesia, Thailand, and the Philippines. This study provides a relevant implication specifically that devaluation strengthens the balance of trade. Following the Marshall-Lerner condition, exchange rate policies such as devaluation, can used to improve trade balance in Malaysia, Singapore, the Philippines, and Thailand, but not in Indonesia.

Demand for broad money and expenditure components in Japan: an empirical study

Abstract The main objective of the present study is to examine empirically the long-run relation of broad money demand and its determinants in Japan. In contrast with previous study, the present study considers various components of final expenditure demand as determinants that are final consumption goods, expenditure on investment goods and exports. Using quarterly data over the period 1973Q1–2000Q2, the results of the bounds test [J. Appl. Econ. 16 (2001) 289] indicate a stable long-run relationship between demand of real M2 and its determinants. The empirical results also highlight that different domestic demand components yields different effects on Japanese broad money demand behavior. The estimated unrestricted error-correction model appears to track the data well and the results have important policy implications.