Long-Run Stability of Money Demand and Monetary Policy: The Case of South Korea
View Abstract View PDF Download PDF


Money demand function, Cointegration, Monetary policy, Log-log form, Semi-log form, Zivot-Andrews, Bai-Perron Johansen, Gregory–Hansen, Exogeneity, Causality tests.

How to Cite

Dritsaki, M. ., & Dritsaki, C. . (2022). Long-Run Stability of Money Demand and Monetary Policy: The Case of South Korea. Asian Economic and Financial Review, 12(5), 296–316. https://doi.org/10.55493/5002.v12i5.4482



The current paper aims to investigate the stability of money demand in the case of Korea. Since the economic reforms in Korea faced considerable structural changes, it was difficult to formulate a stable money demand function. The use of unit root and cointegration tests with structural breaks suggest that economic and financial deregulations have influenced the stability of money demand. The cointegration results suggest a cointegration vector in all models, implying a long-run relationship. Furthermore, the estimated long-run equations show that the elasticity of long-run industrial production to real money is positive and very close to one. Finally, the exogeneity test shows a long-run, one-way, causal relationship from industrial production to M1 and a bi-directional causality between M1 and interest rate in both models. In the case of M3, there are long-run, one-way, causal relationships from industrial production and interest rate to M3 in both models.

View Abstract View PDF Download PDF


Download data is not yet available.