Title: An empirical investigation of stability of money demand for GCC countries

Authors: Haider Mahmood; Mohammad Asif

Addresses: Prince Sattam bin Abdulaziz University, 165 Al-Kharj 11942, Saudi Arabia; COMSATS Institute of Information Technology, 1.5 KM Defense Road, Off Raiwind Road, Lahore 54000, Pakistan ' Prince Sattam bin Abdulaziz University, 165 Al-Kharj 11942, Saudi Arabia; Aligarh Muslim University, Aligarh-202002, UP, India

Abstract: Money demand stability attracts the attention of policy makers while deciding the right policy instrument for the monetary policy. The present study estimates the money demand function by using a time spam of 1980-2014 for the GCC countries. For this purpose, it uses the ARDL cointegration technique to find long-run relationships. The cointegration test has confirmed the long-run relationships in money demand functions for all GCC countries. In the long-run analysis, a positive income elasticity of money demand has been found in all GCC countries. Negative and significant semi-interest rate elasticity has been found in UAE, Bahrain, Qatar and Kuwait. Positive and significant exchange rate elasticity has been found in UAE and KSA and it has found negative in Qatar and Kuwait. Positive and significant inflation rate elasticity has been found in Kuwait and Bahrain and it has found negative in UAE, Oman and KSA. Short-run analysis also reveals some significant elasticities. Further, money demand function proofs stable in KSA and Oman and it remains unstable for the rest of GCC countries.

Keywords: money demand function; monetary policy; cointegration test; money demand stability; GCC countries; Gulf Cooperation Council; income elasticity; United Arab Emirates; exchange rate elasticity; Qatar; inflation rate elasticity; Kuwait; Bahrain; UAE; Oman; Saudi Arabia.

DOI: 10.1504/IJEBR.2016.076177

International Journal of Economics and Business Research, 2016 Vol.11 No.3, pp.274 - 286

Received: 15 Dec 2015
Accepted: 17 Jan 2016

Published online: 25 Apr 2016 *

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