Empirical analysis of the elasticity of real money demand to macroeconomic variables in the United Kingdom with 2008 financial crisis effects

Aweda, Nurudeen Olawale and Akinsanya, Taofik and Akingbade, Adekunle and Are, Stephen Olusegun (2014) Empirical analysis of the elasticity of real money demand to macroeconomic variables in the United Kingdom with 2008 financial crisis effects. Journal of Economics and International Finance, 6 (8). pp. 190-202. ISSN 2141-6672

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Abstract

This research work has employed vector error correction and cointegration techniques in order to estimate the elasticity of real money demand to macroeconomic variables such as industrial production index, exchange rates and short-term interest rates in the United Kingdom. Also, global financial crisis was introduced as an impulse variable to capture structural breaks inherent in the series. Empirical results showed that long-run relationships existed between real money demand and industrial production index, short-term interest rates, and exchange rates in the United Kingdom. The study showed that in the long-run, real money demand had more than unity elasticity with industrial production index in both economies. Real money demand has an inelastic relationship with short-term interest rates and exchange rates. Furthermore, results indicated that it would take long time for real money demand to adjust to its long-run equilibrium. Impulse response analysis revealed that any increase in short term interest rates will have negative effects on the real money demand in the medium to long-term. Whilst real money demand in the United Kingdom tend to be more significant in forecasting the Euro zone money demand, the latter tends to be negatively statistically significant in the former real money demand model. The financial crisis witnessed globally had negative effects on real money demand in the United Kingdom.

Item Type:	Article
Subjects:	Q Science > Q Science (General) Q Science > QA Mathematics
Divisions:	Faculty of Engineering, Science and Mathematics > School of Mathematics
Depositing User:	Mr Taiwo Egbeyemi
Date Deposited:	09 Jun 2020 16:22
Last Modified:	09 Jun 2020 16:22
URI:	http://eprints.federalpolyilaro.edu.ng/id/eprint/400

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