Author

  • Indranarain Ramlall

    • University of Mauritius, Réduit, Mauritius
    • Mauritius

Abstract

This paper employs ECM approach to investigate the long run and short-run components of the broad money demand function in Mauritius for the period spanning from 2000 to 2009. To the author’s best knowledge, no study has been undertaken over broad money in Mauritius since 1992, with an update being long overdue. Results show that M2 is positively elastic with respect to GDP, with the elasticity coefficient revolving around 2.80%, clearly showing that Mauritius is not endowed with a fully developed financial system with monetization moving faster than output. The low adjustment coefficient for VECM furthers substantiates the fact that there is indeed a lack of alternative assets to M2 and above all fully justifies the transition from monetary targeting to interest rate targeting. Evidence is found in favor of foreign asset substitution but only through the exchange rate channel. Findings further show that the local stock market does not act as a substitute to local money holdings. Overall, the study points out a rather stable demand for money function in Mauritius so that the monetary authority can contemplate using it as a complementary tool but chiefly for long-run policy assessments.

Keywords

References

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How to Cite

Ramlall, I. (2012). Broad Money Demand in Mauritius with Implications for Monetary Policy. Journal of Economics and Behavioral Studies, 4(8), 436-448. https://doi.org/10.22610/jebs.v4i8.345

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Section

Research Paper

Published in

Vol. 4 No. 8 (2012) Behavioural Finance, Monetary Policy & Sustainable Consumption View issue contents

Published

2012-08-15

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