The macro-economic reform and the demand for money in India

Abstract

This paper is an attempt to estimate the short-run and long-run money demand functions in India during the 90’s. The paper tries to closely follow the methodologies laid down in Chow (1966), Hendry (1980), Rose (1985) and Hwang (1985). The main findings of the paper are: 1) permanent income is not an appropriate representation of the scale variable, 2) the positive interest elasticity of demand for money in the short-run, 3i) limited ability of economic agents in removing disequilibrium of past period, and 4) rejection of the real adjustment hypothesis.