Disequilibrium institutional factors in aggregate money demand: evidence from three economies

This paper investigates the disequilibrium effects of a number of institutional factors on the aggregate money demand behaviour of three Asian economies: Japan, Korea and Singapore. It identifies these institutional factors with strong government interventions through monetary or fiscal policies. The investigation is carried out through progressive model search following the equilibrium-correction modelling (ECM) approach. The findings confirm to the arguments that undesirable empirical results from the ECM procedure, such as residual (unconditional or conditional) heteroscedasticity or coefficient non-constancy, are most probably symptoms of the missing variable problem in the underlying theoretical model, and that extension of the theoretical model accordingly to include certain institutional factors pertaining to the particular economies under investigation can enhance the significance of the empirical studies in a substantial way. (C) 1998 Elsevier Science B.V. All rights reserved. JEL classification: C51; E41; E60; F41; O23; O53; O57; P52.