How Government Policy and Demographics affect Money Demand Function in Bangladesh

Money demand has a key position in macroeconomics generally and monetary economics particularly.The improved economic condition of any country is a sign of increasing money demand and deteriorating economic climate is a sign of decreasing money demand (Maravic & Palic, 2005).In this study, Autoregressive distributed lag (ARDL) approach of co-integration developed by Pesaran et al., (2001) is used to estimate the money demand function.Real interest rate, GDP per capita, exchange rate, fiscal deficit, urban and rural population are selected to determine money demand function in Bangladesh over the period from 1975-2013.The co-integration analysis reveals that interest rate and per capita GDP exerts significant effect upon money demand both in long run and short run as well.Both urban and rural population have significant effect on money demand in the long run and short run and money demand function is found stable over time.