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International Journal of Business and Economics

International Journal of Business and Economics
Volume 20, No. 2

September, 2021
 
Asymmetric Effects of Economic Uncertainty on Money
Demand Function in Bangladesh: A Nonlinear ARDL
and Cumulative Fourier Causality Approach
 
S. M. Woahid Murad
Department of Economics, Noakhali Science and Technology University, Noakhali, Bangladesh
 
Abstract
This study revisits the demand for money in Bangladesh considering economic uncertainty and covering 1999:M1 to 2018:M6. We employed a nonlinear ARDL model and cumulative Fourier causality tests. In contrast to the previous studies, we obtain higher exchange rate elasticity and lower income elasticity of money demand function. It is found that people hold less money in the short run when uncertainty increases, albeit it does not sustain in the long run. On the contrary, demand for money rises in the short run and declines in the long run when uncertainty decreases. We also find a unidirectional causality from income and economic uncertainty to money after considering the Fourier causality test. Therefore, a fiscal policy should be considered along with a monetary policy to tune Bangladesh’s economy.
 
Keywords:Money Demand, Output Uncertainty, Nonlinear ARDL, Fourier Causality, Bangladesh.
 
JEL Classifications:C22, E41.
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