Symmetric and Asymmetric Effects of Exchange Rates on Money Demand: Empirical Evidence From Vietnam
BETA working paper 2019-49
Applied Economics: https://www.tandfonline.com/doi/full/10.1080/00036846.2021.1888864
28 Pages Posted: 10 Jan 2020 Last revised: 1 Mar 2021
Date Written: December 19, 2019
Abstract
This empirical investigation aims at exploring the determinants of money demand in Vietnam by using both linear and nonlinear autoregressive distributed lags models over the period spanning from the third quarter of 2000 to the first quarter of 2018. Our findings can be summarized as follows: firstly, when the shock is symmetric (i.e. a permanent nominal appreciation of one percent), the money demand increases by 3.7 percent in the long term. Secondly, when the shock is asymmetric, for a permanent nominal appreciation of one percent, we observe an increase of 15.6 percent in the money demand. Whereas, for a permanent nominal depreciation of one percent, we observe a decrease of 7.4 percent in the money demand. These results are consistent with symmetry tests and lead us to think that asymmetries occur mainly in the short run and are transmitted to the long run.
Keywords: Money Demand, Exchange Rate, ARDL models, NARDL models, Dollarization
JEL Classification: C22, E41, F31, F33 , F41
Suggested Citation: Suggested Citation