DEMAND FOR MONEY SPECIFICATIONS AND ITS STABILITY IN SINGAPORE

Abstract

Money plays a very significant role in any economy. This leads economists to analyse the impact of money demand in the economy and how monetary policy can be used as an Instrument to help the economy to achieve its economic objectives. In general, the stability of the demand for money function has profound implications for the conduct of monetary policy. Therefore before monetary policy can be implemented, it is important to investigate the stability of the demand for money. Only then can monetary policy he effectively implemented. The first chapter will look at the evolution of money, how money has actually evolved itself to what money means to us today. We will then examine the various important functions of money and how it has resolved the difficulties faced in the primitive barter economy. Chapter two will review the various theories of the demand for money from different schools of thoughts, namely the Classical, Keynesians and the-Monetarists. Chapter three will provide an extensive coverage on the different specifications of the demand for money and an analysis of each variable that is incorporated in the demand for money functions. We then formulate various models on the demand for money Singapore. This includes the incorporation of wealth and the expected rate of inflation. In Chapter four, the various models developed in Chapter three are estimated using data covering the ten year period from 1979 to 1988. Results are then analysed and discussed. The Chow test is used to examine the stability of the demand for money in Singapore. The final chapter presents the significant findings and conclusions on the demand for money functions and the implication of the stability tests on the implementation of the monetary policy