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International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 33 (2009)


EuroJournals Publishing, Inc. 2009
http://www.eurojournals.com/finance.htm

An Empirical Analysis of the Money Demand Function in


ASEAN-5
Han Yu
Finance School, Guizhou College of Finance and Economics
Guiyang, P. R. China
E-mail: derec_2001@yahoo.com.cn
Pei-Tha Gan
Department of Economics, Faculty of Business and Economics
Universiti Pendidikan Sultan Idris, Tanjong Malim, Malaysia
E-mail: gan.pt@fpe.upsi.edu.my
Abstract
This paper investigates the dynamic of relationship between real money balances
and real income, lending rates, interest rates and inflation rate in ASEAN-5, namely
Indonesia, Malaysia, Philippine, Singapore and Thailand. Using sample period for each
country spans from 1987 month one through 2007 month four, the empirical results
indicate that (1) cointegration technique two step Engle Granger (1987) and error
correction model (ECM) clearly show that there exists a long run relationships between real
money balances and its determinants and (2) the ECM analysis has provided a support to
the short-run relationships between M2 and real income, lending rates, interest rates and
inflation rate for ASEAN-5.
Keywords: Engle-Granger cointegration test, Error correction model, M1, M2
JEL Classification Codes: E31, E41, E51

1. Introduction
The objective of this paper is to empirically investigate whether an equilibrium relationship exists
between certain combinations of money balances, a scale variable, an opportunity cost measure and
cost of credit. The present study attempt to determine factors affect the demand for money in some
ASEAN countries. The paper examines the role of interest rates and expected rate of inflation in the
money demand function as the appropriate measure of opportunities cost of holding money. The paper
investigates the significance of the costs of credit variable in the demand for money function. In
developed countries, the implementations of monetary policy changes were used to alter the short run
business cycle fluctuations, although long run price movement was likewise, the more important
objective. In developing countries, however, long run economic growth were highly emphasized in
the monetary policy, where money expansion is frequently used as a major source of governments
demand management. Public demand for newly created money, in turn has implication on critical
macroeconomic variables such as income, interest rates, expected inflation and exchange rates. As a
consequence, money demand plays a central role in the success or failure of the development of a
country.

International Research Journal of Finance and Economics - Issue 33 (2009)

169

Theoretically, the demand for real money balances could be divided into transactions demand
component, which is positively related to the income and inversely related to interest rates,
precautionary demand component, positively related to income and speculative demand component,
inversely related to interest rates. In addition, the paper includes the cost of credit as a determinant of
demand for money. Following the previous studies and real world experience, the cost of credit does
matter in developing countries. Since, in developing countries the transaction using broad money (M2)
very often takes place. The government, the business and investors are using credit or lending to ensure
the smooth running of their development activities. The banking system and other financial institutions
create money by giving loans. However, it is a practice that during economic boom and the returns on
investment is high and it encourages an increase in borrowing and lending activities with a relatively
lower cost of credit. By contrast, during economic crisis either it is inflation or deflation, the banks and
other financial institutions increase the cost of borrowing in order to discourage the clients from
borrowing. So an increase in the cost of borrowing is likely to decrease the demand form money.
In this study, cointegration technique developed by Engle-Granger (1987) is being used to
estimate a money demand function in a number of ASEAN developing countries, namely: Indonesia,
Malaysia, Philippine, Singapore and Thailand.

2. Literature Review
Generally, empirical studies regarding money-demand relationship in developing economies generally
use a long-level Goldfeld type model (see Goldfeld, 1973), that relates desired real money balances to
a scale measure, such as the real income and returns of one or more alternative assets to measure the
opportunity cost of holding money. Most studies include a lagged dependent variable term to
approximate the short-run dynamic adjustments. However, as suggested by Arango and Nadiri (1981),
the portfolio decision should include, at least, domestic real assets, domestic financial assets and
foreign financial assets. The omission of the opportunity cost variable of some assets may result in a
misspecified money demand function.
Hossain (1988) estimated a short-run money demand model for Bangladesh using quarterly
data from 1974:1 to 1985:4. The author found a Laidler (1982) short-run real money demand model,
which is appropriate for Bangladesh on the basis of the set of criteria suggested by McAleer et al.
(1985). On the basis of MacKinnon et al. (1983) non-nested test of model selection, the author
concluded that neither the log-linear nor the linear functional form has any advantage over the other for
Bangladesh. The author found the real permanent income and expected inflation rate are the significant
explanatory variables in the demand for money function. The real permanent income was measured as
four quarters unweighted moving average of actual real income and expected inflation was measured
as one-period lagged inflation rate. Finally he found that both narrow money (M1) and broad money
(M2) functions were empirically stable.
Azali and Matthews (1999) proved, among the others, the money as well as credit innovations
made significant contribution to the output fluctuation. Hence there is a growing consensus explaining
money view is not the only way of understanding the transmission mechanism of monetary policy.
Nevertheless, proponents of credit view for example Iturriaga (2000), pointed out that credit view does
not rule out the conventional money view, but rather offers new explanations based on capital market
imperfections. In fact, Schreft and Smith (2000) demonstrated that financial innovations pose no threat
to the traditional methods employed in conducting monetary policy. He provided the evidence of the
credit channel as a possible way of transmitting monetary policy decision. Bacchetta and Ballabriga
(2000), mentioned, among the others, the bank loans magnify the impact of monetary policy.
Recently, Bahmani-Oskooee and Rehman (2005) analyzed the money demand functions for
India and six other Asian countries during the period beginning with the first quarter of 1972 and
ending with the fourth quarter of 2000. Using the ARDL approach descried in Pesaran et al. (2001),
they performed cointegration tests on real money supplies, industrial production, inflation rate, and
exchange rates (in terms of US dollar). For India, cointegration relationships were detected when

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International Research Journal of Finance and Economics - Issue 33 (2009)

money supply was as M1, but not M2, so they concluded that M1 is the appropriate money supply
definition to use in setting monetary policy.

3. The Model and Data


The general agreement in the literature is that a money demand function should contain a scale variable
relating to the level of transactions in the economy and a variable representing the opportunity cost of
holding money. However, Wong (1977) argued that there may be some rationale for inclusion of
interest rates in the demand for money in developing countries as there exists certain links between
formal and informal credit markets, and borrowing is still a means of financing economic activities.
The degree of credit constraint, which may reflect the unobservable interest rates in the money demand
function. In view of this argument, the following money demand function that incorporates three
explanatory variables for estimation purpose is specified as follows:
Mt = a + b t + c GDPt + d Rt + e LRt + t
(1)
Note:
a is constant
b to e are coefficient for each variable

Economic rationale suggests that c>0 while b<0, d<0, e<0, and <0.
where,
Mt
= log of real money demand (M1 or M2) at time t;
GDPt = log of real income GDP at time t;
Rt
= interest rates at time t;
t
= expected rate of inflation at time t;
LRt
= lending rate as a proxy of cost of credit at time t;
t
= error term at time t;
M1
= narrow money defined as currency in circulation plus demand deposits;
M2
= broad money defined as M1 plus time and savings deposit at commercial banks.
M1 and M2:
The quarterly series of M1 and M2 are obtained from IFS.
Gross domestic product: The quarterly series of the nominal gross domestic product (NGDP) is
taken from IFS. The NGDP is divided by consumer price index (CPI) to
obtain the real terms of this variable GDP.
Money market rate:
The quarterly series of money market rate from the IFS is used as interest
rates.
Consumer price index: The quarterly series of CPI is taken from IFS. The inflation rate is taken
from the first difference of the log of CPI level.
Lending rate:
The quarterly series of lending rate is taken from the IFS.
Interpolation method is used on GDP variable. The purpose is to derive monthly figures from
quarterly data.1
Sources of data
Data source: all data are monthly for 1987-month 1 to 2007-month 4 period and taken from
International Financial Statistics of IMF, various issues.

The codes for interpolation (i.e. RATS procedure DISTRIB) are available at www.estima.com/Interpolation.shtml

International Research Journal of Finance and Economics - Issue 33 (2009)

171

4. Methodology
Test for order of integration
The unit root test is to determine whether each data series is non-stationary (that is unit root exist) or
stationary (unit root do not exist). The importance of test stems from the fact is that it forms the
preamble to the econometric analysis of long-run equilibrium relationships proposed by economic
theory. On economic grounds, the conceptual existence of equilibrium relationships proposed by
economic theory means that there exists the belief that certain economic variables should not wander
freely or be independent to each other, instead, they are expected to move so that, they do not drift too
far apart.
PhillipsPerron (PP) test for the stationary series is the modification from Dickey Fuller t
statistics. The test allows the error terms to be weakly dependent and heterogeneously distributed.
Testing for the presence of a unit root with Phillips Perron tests involves estimating the following
equation by OLS:
(2)
Yt = u* + a*1 Yt 1 + *t
Yt = + 1 Yt 1 + 2 (t T/2) + t
(3)
*
where t and t are error terms and T is the sample size. We are testing the null hypothesis. In each
case, the Ho that Yt has a unit root is tested against the alternative that Yt is stationary.
Z (t a*1):
test the hypothesis a*1 = 1
Z (t 1):
test the hypothesis 1 = 1
Z (t 2):
test the hypothesis 1 = 0
test the hypothesis 1 = 1, and 2 = 0
Z (3):
The two-step Engle-Granger cointegration test for long run
Suppose one determines that Y and X following the random walks, but Yt and Xt are stationary.
Then to test whether Yt and Xt are cointegrated, we simply runs the cointegrating regression as
following:
Yt = + X t + t
(4)
Then testing whether the residual, t from this regression are stationary. If they were not
cointegrated, any linear combination of them would be nonstationary. Specifically, we test the
hypothesis that t is not stationary, i.e. the hypothesis of no cointegration. A test of the hypothesis
implies that t is nonstationary and it can be done in using ADF test.
An augmented Dickey-Fuller test can be performed on the residual series. ADF requires
estimation of the following:
N

t = t 1 + b i t 1 + t

(5)

t =1

where and bi are the estimated parameters and t is the error term. If the t statistic of coefficient
exceeds the critical value, the t residuals from the cointegration regression are stationary; in addition,
the independent variable and dependent variable are cointegrated.
Error Correction Model (ECM)

If Yt and Xt are cointegrated, then there is a long-term equilibrium relationship between the two
variables. Of course in the short run, there may exist the disequilibrium. Therefore, the error term in
equation can be treated as the "equilibrium error". Fortunately, Engle and Granger (1987) provided a
remedy to correct the problem, suggesting that cointegrated series can be represented by an error
correction model (ECM) as:
Yt = 0 + M,i=1yiYt-i + N,i=1xiXjt-i + 3ut-1 + t
(6)
(Note: J in this study is inflation, real income, interest rates and lending rates)

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International Research Journal of Finance and Economics - Issue 33 (2009)

where u t is the lagged value of error term from the cointegration equation:
Yt = Xt + u t
(7)
The estimates of error correction model, testing the hypothesis that past changes in independent
variables and error correction term will not cause a current changes in the dependent variables (i.e. that
the coefficient of lagged variables and the error correction term (residual) are jointly zero). If they are
significant, the lagged variables are important in predicting current movement of the dependent
variable, and the dependent variables in the equation adjusted to the previous equilibrium error. It is
noted that the specification of the number of lags (m) in this regression is randomly chosen. Generally,
it is suggested that the tests can be run for a few different values of (m) to make sure the result are not
sensitive to the choice of (m). With monthly data, it is recognized that lags up to 4 and to 12 months
are likely to be sufficient.

5. Empirical Analysis and Results


The Phillips Perron integration test is given in Table 1. The results show that all the variables are
non-stationary at level having unit roots. On the first difference of time series, all variables in five
selected countries are stationary; except for GDP in Thailand have unit roots, which it is not significant
at the first difference, but significant at second difference. Table 1 results present the findings that all
variables in the five selected countries are integrated in order one, except GDP in Thailand integrated
in order two.

International Research Journal of Finance and Economics - Issue 33 (2009)


Table 1:
Variable

173

Unit Root Tests (PP)


Level
Intercept with trend

First difference
Intercept without trend

Malaysia
CPI
-3.626221 [4]
-10.66908 [4]*
R
-1.993611 [4]
-7.972623 [4]*
GDP
2.460084 [6]
-3.499366 [6]*
LR
-2.935993 [4]
-11.05665 [4]*
M2
-3.164899 [4]
-13.43523 [4]*
M1
0.003157 [4]
-11.91818 [4]*
Thailand
CPI
-2.548343 [4]
-9.712396 [4]*
R
-1.436003 [4]
-9.521124 [4]*
GDP
-3.644802 [6]
-0.896147 [6]
LR
-0.967722 [4]
-8.020581 [4]*
M2
-0.069044 [4]
-10.48523 [4]*
M1
-2.552771 [4]
-11.93708 [4]*
Singapore
CPI
-0.816641 [4]
-13.59854 [4]*
R
-1.414863 [4]
-10.42455 [4]*
GDP
-1.574264 [2]
-3.485910 [2]*
LR
-2.055591 [4]
-6.931661 [4]*
M2
-1.848404 [4]
-10.90287 [4]*
M1
-3.988124 [1]
-21.26106 [1]*
Philippines
CPI
-1.723841 [4]
-10.43978 [4]*
R
-2.482318 [4]
-11.77639 [4]*
GDP
-1.714985 [4]
-3.495254 [4]*
LR
-2.324024 [4]
-13.58733 [4]*
M2
-2.780896 [4]
-12.64132 [4]*
M1
-0.524988 [4]
-15.21597 [4]*
Indonesia
CPI
-0.429561 [4]
-4.917065 [4]*
R
-1.592332 [4]
-12.98891 [4]*
GDP
-1.927538 [4]
-5.086030 [4]*
LR
-1.009978 [4]
-9.765543 [4]*
M2
-2.097304 [4]
-19.05195 [4]*
M1
-3.283079 [4]
-15.76593 [4]*
Notes: In each case, the Ho that Yt has a unit root is tested against the alternative that Yt is stationary. Since these
statistics are asymptotically equivalent to the corresponding Dickey-Fuller tests, the critical values from Fuller
(1976) and Dickey (1981) can be used in testing. * Indicates evidence of rejection of unit root at 1% level. The
numbers of lags are in the bracket.

Next, cointegration tests are performed to test the presence of a long-term equilibrium
relationship among the variables. Engle Granger (EG) two-step had been used. The EG estimation are
similar to the one of unit root. We test the residuals obtained from each money demand function of five
selected countries, and use the ADF test.2 The results from implementing the Engle Granger
cointegration are presented in Table 2 and Table 3.

If the dependent variable and independent variables are not cointegrated, any linear combination of them will be
nonstationary and, therefore, the residuals u t will be nonstationary too.

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Table 2:

International Research Journal of Finance and Economics - Issue 33 (2009)


Engle Granger Two-Step for M1

Coefficient on regressors
ADF auxiliary regressors
2
2
3
4
R

Lags
C
1
3
-3.28
-2.93
19.25
-0.11
-0.22
0.96
-3.7792*
4
Thailand
0.72
-0.01
0.99
-0.06
-0.51
0.98
-2.8384*
4
Indonesia
2.37
-4.76
2.75
-0.21
-0.37
0.98
-3.2889*
4
Malaysia
-0.63
-0.05
1.34
-0.12
-0.11
0.99
-5.7774*
4
Philippines
-0.31
-1.29
0.59
-0.04
-0.34
0.98
-4.9659*
3
Singapore
Notes: * Mackinnon critical values for rejection of hypothesis of a unit root at 5%. The numbers of lags are in the brackets.
Countries

Table 3:
Countries

Engle Granger Two-Step for M2


Coefficient on regressors

ADF auxiliary regressors


2

2
3
4
R

Lags
C
1
-4.32
-3.83
16.35
-0.04
-0.02
0.98
-2.9115*
4
Thailand 4
-0.89
-0.24
1.36
-0.14
-0.38
0.97
-2.5164*
4
Indonesia
-3.59
-3.59
0.30
-0.21
-0.41
0.99
-2.8394*
4
Malaysia
-0.36
-1.23
2.62
-0.16
-0.04
0.99
-3.9690*
4
Philippines
-1.98
-1.38
0.91
-0.18
-0.69
0.96
-2.8364*
3
Singapore
Notes: * Mackinnon critical values for rejection of hypothesis of a unit root at 5%. The numbers of lags are in the brackets.

The test was conducted sequentially by further reducing lag. The procedure was repeated until
the restriction could be rejected at 5% and 10% level. Table 2 and Table 3 indicate that there are long
run relationships between M1 and its determinants; M2 and its determinants respectively for the
sample period covered in this study.
Table 2 and Table 3 just showed that M1 and M2 and its determinants are cointegrated. Of
course, in the short run there may be disequilibrium. Therefore, one can treat the error term in
(equation) as the equilibrium error. Error term can be used to tie the short run behavior of M2 to its
long run value. The error correction mechanism (ECM) was initially used by Sargan (1964) and latter
popularized by Engle and Granger corrects for disequilibrium.

3
4

For Thailand GDP is estimated in first difference.


For Thailand GDP is estimated in first difference.

International Research Journal of Finance and Economics - Issue 33 (2009)


Table 4:

175

Short-Term Dynamics Error Correction Model for M1

Variables
Coefficient
t-ratio
Probability
Dependent variable: M1t
Malaysia
Constant
-0.004168*
-1.065916
0.2884
ECM t-1
-0.139893*
-3.076510
0.0019
M1 t-10
-0.237211*
-3.065039
0.0026
CPI t-3
-2.148390*
-2.262726
0.0253
GDP t-3
3.041240*
3.794380
0.0002
R t-4
-0.095993**
-1.902870
0.0593
LR t-1
-0.158648**
1.893853
0.0605
Thailand
Constant
0.006639*
3.835433
0.0002
ECM t-1
-0.263431*
-4.712762
0.0000
M1 t-3
0.188400*
2.342103
0.0208
CPI t-1
-2.050446*
-3.473282
0.0007
GDP t-15
4.130483**
1.617090
0.0932
R t-5
-0.094712*
2.054221
0.0421
LR t-6
-0.236025**
1.880685
0.0624
Singapore
Constant
-0.001189*
-0.352943
0.7247
ECM t-1
-0.570108*
-5.947454
0.0000
M1 t-1
-0.226557*
-2.829111
0.0054
CPI t-4
-2.052671**
-1.679362
0.0955
GDP t-9
1.422682**
1.837762
0.0684
R t-9
-0.573705*
2.194587
0.0300
LR t-9
-0.963097**
-1.819568
0.0711
Philippines
Constant
0.004002*
0.779530
0.0071
ECM t-1
-0.463200*
-6.695092
0.0000
M1 t-9
-0.202667*
-2.813637
0.0057
CPI t-7
-0.706163**
-1.747369
0.0829
GDP t-6
1.151471
1.015783
0.3116
R t-1
-0.078986*
2.121813
0.0358
LR t-10
-0.182408*
-3.953567
0.0001
Indonesia
Constant
0.006520*
3.401042
0.0009
ECM t-1
-0.164446*
-3.548723
0.0005
M1 t-3
0.140300**
1.758204
0.0810
CPI t-2
-0.761969*
-2.974491
0.0035
GDP t-4
0.279183
1.631612
0.1051
R t-5
-0.077451**
-1.729600
0.0860
LR t-5
-0.323062*
0.106654
0.0029
Notes: * and ** denote statistical significant at 5% and 10% level, respectively. is first difference. is second
difference. CPI is an inflation (t). ECMt-1 is one period lagged error correction term. Batteries of diagnostic tests
were applied for each equation. The ECM passed most of the diagnostic tests including serial correlation,
functional form and heteroscedasticity (The results are available on request).

176
Table 5:

International Research Journal of Finance and Economics - Issue 33 (2009)


Short-Term Dynamics Error Correction Model for M2

Variables
Coefficient
t-ratio
Probability
Dependent variable: M2t
Malaysia
Constant
0.008859 *
4.230087
0.0000
ECM t-1
-0.114411 *
-3.288963
0.0013
M2 t-2
0.185761 *
2.258886
0.0255
CPI t-5
-1.298427 *
-2.573674
0.0111
GDP t-3
-0.765278 **
-1.714923
0.0887
R t-1
0.056101 **
1.970451
0.0508
LR t-6
-0.073978 **
1.658513
0.0996
Thailand
Constant
0.005179 *
8.129764
0.0000
ECM t-1
-0.037292 **
-1.961460
0.0519
M2 t-3
0.219359 *
2.652009
0.0090
CPI t-6
-0.295117 **
-1.975338
0.0503
GDP t-8
-1.586034 *
-2.817538
0.0056
R t-5
0.022956 **
1.956470
0.0525
LR t-3
-0.053035 **
1.857360
0.0655
Singapore
Constant
0.010248 *
5.758511
0.0000
ECM t-1
-0.061698 *
-2.836667
0.0053
M2 t-3
0.140095 **
1.708556
0.0899
CPI t-8
-1.228011 *
-2.131463
0.0349
GDP t-10
-1.256676 *
-3.093406
0.0024
R t-11
0.150293 *
3.791080
0.0002
LR t-8
-0.243338 *
3.047593
0.0028
Philippines
Constant
0.005023
1.495613
0.1372
ECM t-1
-0.204272 *
-4.895408
0
M2 t-8
-0.135844 **
-1.846255
0.0671
CPI t-8
-0.915210 *
-3.560325
0.0005
GDP t-4
1.328482 **
1.871908
0.0634
R t-9
-0.042280 **
1.737582
0.0846
LR t-9
-0.061925 **
1.937716
0.0548
Indonesia
Constant
0.013398 *
6.812734
0.0000
ECM t-1
-0.081524 *
-2.991474
0.0033
M2 t-1
-0.350279 *
-4.951038
0.0000
CPI t-1
-0.927630 *
-3.937841
0.0001
GDP t-5
0.652772 *
4.109254
0.0001
R t-8
-0.138951 *
-3.528497
0.0006
LR t-5
-0.376195 *
4.051964
0.0001
Notes: * and ** denote statistical significant at 5% and 10% level, respectively. is first difference. is second
difference. CPI is an inflation (t). ECMt-1 is one period lagged error correction term. Batteries of diagnostic tests
were applied for each equation. The ECM passed most of the diagnostic tests including serial correlation,
functional form and heteroscedasticity (The results are available on request).

According to Table 4 and Table 5, the significant coefficient for the error correction term is an
indication that neglecting the cointegratedness of the variables, which could introduce a serious
misspecification in the dynamics relationship. The results of the ECM M1 and M2 indicating
inflation rate, real income, interest rates and lending rates are cointegrated. The small magnitude of the
coefficient for ECM t-1 indicates that the adjustment toward equilibrium is rather slow. In short-run, the
inflation rate, real income, interest rates and lending rates are statistically significant and have

International Research Journal of Finance and Economics - Issue 33 (2009)

177

corrected sign for ASEAN countries, namely Indonesia, Malaysia, Philippine, Singapore and Thailand;
except real income of M1 of Philippines and Indonesia are not significance.

6. Conclusions
The purpose of this study is to investigate the demand for money in the five ASEAN developing
countries. The relationship between real money balances and its determinant is not a new research
topic and it frequently yields mixed result. However the studies are never ending. It is stimulated due
to the structure adjustment and the policy fine-tuning of a particular country, such as, financial
innovation and financial liberalization. Obviously various issues need to be investigated rigorously,
such as the appropriate scale variable (measured of permanent income), the opportunity costs of
holding money and lending rate (measured of the cost of credit).
Estimation of the long run relationship on monetary aggregates was obtained by employing
Engle Granger two-step cointegration technique. However, as to the short-run dynamic relationship on
monetary aggregate and its determinants, error correction model was employed. The estimation runs
through monthly data for the period 1987: month 1 to 2007: month 4.
The cointegration results and ECM result clearly show that there exists a long run and short
run dynamic equilibrium relationships between monetary aggregate (M1 and M2) and real income,
interest rates, inflation and lending rates. Hence, the money demand equation for each country appears
well fitting and structurally stable. This finding suggests that the Central Bank of these five major
ASEAN countries should emphasize the narrow or broad definition of money for monetary control to
achieve their goals. However, this also provides an optional to particular Central Bank to choose either
narrow or broad definition of money, which is more applicable for setting policy, target and achieving
their goals.
Two more findings deserve special mention. First the empirical results show that income
variable exhibits a long-run relationship with real money balances even its affected by timing
differences and re-tested by new estimation technique. Second, a plausible case has been made in
theory that demand for money depend upon the cost of borrowing (lending rate), since borrowing, just
like drawing on precautionary, transaction and speculation balances, is one way of meeting foreseen
and unforeseen expenditure. The empirical results indicate that the money demand model, where the
costs of borrowing (lending rate) are considered, playing a significant role in the standard demand for
money models.
In summary, although not impossible, the five ASEAN countries appear to be relatively
suitable towards integrating the monetary system. Moreover, monetary integration is essential in
ensuring long run regional financial system stability. Future study, concerning proper use of financial
variables as well as monetary variables and proper institutional set up will further identify the correct
structure of the integration.

178

International Research Journal of Finance and Economics - Issue 33 (2009)

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