Financial progress and the stability of long-run money demand: Implications for the conduct of monetary policy in emerging economies

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Author Darrat, A.F. en_US
Author Al-Sowaidi, S.S. en_US
Available date 2009-12-27T07:15:29Z en_US
Publication Date 2009-03-02 en_US
Citation Ali F. Darrat, Saif S. Al-Sowaidi, Financial progress and the stability of long-run money demand: Implications for the conduct of monetary policy in emerging economies, Review of Financial Economics, Volume 18, Issue 3, August 2009, Pages 124-131 en_US
URI http://dx.doi.org/10.1016/j.rfe.2009.04.003 en_US
URI http://hdl.handle.net/10576/10473 en_US
Abstract This paper examines whether recent financial changes in three emerging market economies in the Gulf region (Bahrain, the UAE, and Qatar) have distorted the character and the stability of their underlying long-run money demand relations. Money demand instability prompts concerns about the appropriateness of targeting monetary aggregates and could weaken the presumed link between monetary policy and its ultimate objectives. Our results suggest that the quick pace of financial changes in the three emerging market economies did not cause undue shifts in their equilibrium money demand relations. Further evidence from direct tests of cointegration stability indicates the superiority of targeting M1 in the UAE and M2 for Qatar. In Bahrain, both M1 and M2 prove equally appropriate to guide monetary policy. Thus, despite the wave of financial developments that have recently swept the three Gulf economies, the evidence suggests that monetary authorities in these countries should maintain a close watch on monetary growth as a principal policy guide. en_US
Language en en_US
Publisher Elsevier Inc. en_US
Subject Financial development en_US
Subject Money demand instability en_US
Subject Monetary policy en_US
Subject Cointegration en_US
Subject GCC region en_US
Title Financial progress and the stability of long-run money demand: Implications for the conduct of monetary policy in emerging economies en_US
Type Article en_US


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