Skip to main content
SpringerLink
Log in

On the Instability of Tunisian Money Demand: Some Empirical Issues with Structural Breaks

  • Original Article
  • Published:
Journal of Quantitative Economics Aims and scope Submit manuscript

Abstract

This paper focuses on the causes of instability of money demand in Tunisia between 1973 and 2013. It has been argued that the main explanatory factors of money demand are national income, monetary market rate and exchange rate. We tested Ambler and McKinnon hypothesis (1985), which assumes that instability is explained by the absence of the nominal exchange rate in the specification of money demand. We found that structural changes are explained by the dependence of the national economy to world shocks, the IMF’s structural adjustment programme at the end of 1986.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. The implementation of financial reforms has raised doubts about the use of monetary aggregates to stabilize inflation rates. The Central Bank of Tunisia (CBT) switches between instruments of monetary policy by moving away from policies that influence money supply towards those that influence bank rates. Monetary policy is an important component of macroeconomic policy, which aims at maintaining macroeconomic stability and price stability.

References

  • Ambler, S., and R. McKinnon. 1985. U.S. Monetary Policy and the Exchange Rate: Comment. American Economic Review 75: 557–559.

    Google Scholar 

  • Andrews, D.W.K., and W. Ploberger. 1994. Optimal tests when a nuisance parameter is present only under the alternative. Econometrica 62 (6): 1383–1414.

    Article  Google Scholar 

  • Andrews, W.K. 1993. Tests for parameter instability and structural change with unknown change point. Econometrica 61 (4): 821–56.

    Article  Google Scholar 

  • Andrews, W.K. 1993. Tests for parameter instability and structural change with unknown change point. econometrica 61: 821–856.

    Article  Google Scholar 

  • Bagshaw, M.L. 1983. Extension of Granger causality in multivariate time series models. The Federal Reserve Bank of Cleveland, WP \(\text{n}^{\circ }\)8303.

  • Bahmani-Oskooee, M., and M. Pourheydarian. 1990. Exchange rate sensitivity of demand for money and effectiveness of fiscal and monetary policies. Applied Economics 22: 917–925.

    Article  Google Scholar 

  • Bahmani-Oskooee, M., and H. Rehman. 2005. Stability of the money demand function in Asian developing countries. Journal of Applied Economics 37: 773–792.

  • Bahmani-Oskooee, M., and G. Abera. 2009. How stable is the demand for money in African countries. Journal of Economic Studies 36 (3): 216–235.

    Article  Google Scholar 

  • Buch, C. 2001. Money demand in hungary and poland. Applied Economics 33: 989–999

  • Bai, J., and P. Perron. 1998. Estimating and testing linear models with multiple structural changes. Econometrica 66: 47–78.

    Article  Google Scholar 

  • Chow, G.C. 1960. Tests of equality between sets of coefficients in two linear regressions. Econometrica 28 (3): 591–605.

    Article  Google Scholar 

  • Dickey, D.A., and W.A. Fuller. 1979. Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association 74: 427–431.

    Google Scholar 

  • Dickey, D.A., and W.A. Fuller. 1981. Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica 49: 1057–1072.

    Article  Google Scholar 

  • Ftiti, Z., K. Guesmi, F. Teulon, and D.K. Nguyen. 2015. Modelling inflation shifts and persistence in Tunisia: perspectives from an evolutionary spectral approach. Applied Economics 47 (57): 6200–6210.

    Article  Google Scholar 

  • Glynn, J., N. Perera, and R. Verma. 2007. Unit root tests and structural breaks: a survey with applications. Journal of Quantitative Methods for Economics and Business Administration 3 (1): 63–79.

    Google Scholar 

  • Granger, C.W. 1969. Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica 57 (3): 424–438.

    Article  Google Scholar 

  • Haugh, L.D. 1972. The identification of time series interrelationships with special reference to dynamic regression. Ph.D. Thesis, Department of Statistics, University of Wisconsin, Madison.

  • Kwiatkowski, D., P.C.B. Phillips, P. Schimidt, and Y. Shin. 1992. Testing the null hypothesis of stationary against the alternative of a unit root. Journal of Econometrics 54: 159–178.

    Article  Google Scholar 

  • McKinnon, R., et al. 1984. International Influence on the U.S. Economy: Summary of an Exchange. American Economic Review 74: 1132–1134.

    Google Scholar 

  • McKinnon, R.I. 1985. Two concepts of international currency substitution, In: The economics of the Caribbean basin, eds. M.D. Connoly, Josh McDermott, pp. 101–130 New York: McDermott, Praeger.

  • Nelson, C.R., and C.I. Plosser. 1982. Trends and random walks in Macroeconomic Time Series. Journal of Monterey Economics 10: 139–162.

    Article  Google Scholar 

  • Ng, S., and P. Perron. 1995. Unit root tests in ARMA models with data dependent methods for the selection of the truncation lag. Journal of the American Statistical Association 90: 268–281.

    Article  Google Scholar 

  • Perron, P. 1989. The great crash, the oil price shock, and the unit root hypothesis. Econometrica 57: 1361–1401.

    Article  Google Scholar 

  • Perron, P. 1997. Further evidence on breaking trend functions in macroeconomic variables. Journal of Econometrics 80 (2): 355–385.

    Article  Google Scholar 

  • Peytrignet, M. 1996. Stabilité économétrique des agrégats monétaires suisses. Swiss National Bank Quarterly Bulletin 3 (96): 251–278.

    Google Scholar 

  • Pierce, D.A. 1975. Forecasting in dynamic models with stochastic regressors. Journal of Econometrics 3: 349–374.

    Article  Google Scholar 

  • Pierce, D.A., and L.D. Haugh. 1977. Causality in temporal systems: characterizations and a survey. Journal of Econometrics 5: 265–293.

    Article  Google Scholar 

  • Pradhan, Basanta K., and A. Subramanian. 2003. On the stability of demand for money in a developing economy: Some empirical issues. Journal of Development Economics 72: 335–351.

  • Quandt, R.E. 1960. Tests of the hypothesis that a linear regression system obeys two separate regimes. Journal of the American Statistical Association 55 (290): 324–330.

    Article  Google Scholar 

  • Reese, S. 2012. Are tests for smooth structural change affected by data inaccuracies? A simulation study. Lunds Universitet Working paper: 1–19.

  • Sims, C.A. 1972. Money, income, and causality. American Economic Review 62: 540–52.

    Google Scholar 

  • Todani, K. 2007. Long-run M3 demand in South Africa: A cointegrated VAR Model. South African Journal of Economics 75: 681–692.

    Article  Google Scholar 

  • Zivot, E., and W.K. Andrews. 1992. Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of Business & Economic Statistics 10: 251–270.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Faculty of Law, Economics and Management, University of Jendouba, Jendouba, Tunisia

    Nidhal Mgadmi

  2. IHEC Carthage, University of Carthage Tunis, Tunisia & IPAG Business School, Paris, France

    Houssem Rachdi

  3. ESC Business School of Tunis, University of Manouba, Tunis, Tunisia

    Hichem Saidi

  4. Department Energy Finance, IPAG Business School, Paris, France

    Khaled Guesmi

Authors
  1. Nidhal Mgadmi
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Houssem Rachdi
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Hichem Saidi
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Khaled Guesmi
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Houssem Rachdi.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Mgadmi, N., Rachdi, H., Saidi, H. et al. On the Instability of Tunisian Money Demand: Some Empirical Issues with Structural Breaks. J. Quant. Econ. 17, 153–165 (2019). https://doi.org/10.1007/s40953-018-0123-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40953-018-0123-x

Keywords

JEL Classification

Search

Navigation