Demand for Money in India

Money demand elasticities have been considered as critical inputs to regulate the conduct of monetary policy. A stable demand function for money further has been regarded as essential condition for the viability of monetary policy. Hence, demand for money has been subjected to extensive empirical scrutiny in many countries over the years. The issue assumes importance in the context of an economy experiencing financial innovation, deregulation and technological changes. Therefore, it is felt necessary to have a fresh look at some of the issues in the context of Indian economy. In the light of above discussion the objectives of the present study are set as follows: (i) to examine the role of asset markets, external sector and inflationary expectation on demand for money in the context of financial innovation, institutional changes, liberalization and asset market changes,(ii) to re examine the issue of temporal stability and long run equilibrium relationship of money demand function by using latest time series techniques (iii) to test the validity of the Buffer - Stock approach to money demand, and (iv) to examine the implications of the new evidences for monetary policy.