پیشرفت مالی و ثبات تقاضای پول در بلند مدت: مفاهیمی برای انجام سیاست های پولی در اقتصادهای در حال ظهور

This paper examines whether recent financial changes in three emerging market economies in the Gulf region (Bahrain, the UAE, and Qatar) have distorted the character and the stability of their underlying long-run money demand relations. Money demand instability prompts concerns about the appropriateness of targeting monetary aggregates and could weaken the presumed link between monetary policy and its ultimate objectives. Our results suggest that the quick pace of financial changes in the three emerging market economies did not cause undue shifts in their equilibrium money demand relations. Further evidence from direct tests of cointegration stability indicates the superiority of targeting M1 in the UAE and M2 for Qatar. In Bahrain, both M1 and M2 prove equally appropriate to guide monetary policy. Thus, despite the wave of financial developments that have recently swept the three Gulf economies, the evidence suggests that monetary authorities in these countries should maintain a close watch on monetary growth as a principal policy guide.

Theory and evidence have long supported a significant role of a smooth-functioning financial market for promoting high and sustained economic growth [De Gregorio and Guidotti (1995), Levine (1997), Darrat (1999), and Darrat, Chopin and Lobo (2005)]. A well-developed financial market enhances growth by promoting a more efficient allocation of resources, encouraging a faster accumulation of physical and human capital and technological progress, and reducing production costs relating to transaction, information and monitoring. Not surprisingly, financial markets in most emerging economies, including those of the Gulf Cooperation Council (GCC), have witnessed rapid expansion in recent years. Among the GCC countries, recent financial developments in Bahrain, Qatar and the UAE are particularly noticeable. These three countries have embarked on several reform measures in the last two decades, including facilitating the new entry of domestic and foreign banks, the gradual deregulation of lending and deposit interest rates, facilitating the use of credit and debit cards, updating payment technologies like ATM machines and electronic transfer of deposits, expanding a variety of internet banking services like e-banking and mobile banking technology, enhancing telecommunications infrastructure, supporting their financial sectors with such measures like tax-free environment, stable and restriction-free exchange rate systems and solid regulatory environment. In their study of recent financial developments in the Middle East and North Africa (MENA) region, Creane, Goyal, Mobarak and Sab (2003) argue that Bahrain, Qatar and the UAE exhibit a significantly higher level of financial progress compared to other MENA countries. While fast financial developments could promote economic growth, such developments may also hamper the effectiveness of monetary policy. Theoretically, financial development and the proliferation of new financial products and deposit substitutes could cause instability in the underlying money demand relationship with important consequences for the conduct and efficacy of monetary policy. This debate dates back to Gurley and Shaw's (1955) thesis that the emergence of new interest-bearing money substitutes resulting from financial developments may unexpectedly increase the interest-rate sensitivity of money holdings. Such elasticity shift in the money demand relation could weaken the presumed stable relation between monetary aggregates and the ultimate policy objectives of high economic growth and price stability. If valid, the Gurley–Shaw hypothesis casts serious doubts on the efficacy of monetary policy and calls into question the common use of monetary targeting in the conduct of monetary policy. As the conventional equation-of-exchange indicates, without a stable money demand (or velocity of money), there will be no predictable link between monetary aggregates and ultimate policy objectives. Indeed, there is some empirical evidence that further financial advancements in several developed countries in the late 1980s have destabilized their underlying money demand relationships [see, for example, Taylor (1987), Mullineux (1994), Mariscal, Trautwein, Howells, Arestis and Hagemann (1995), Hendry and Ericsson (1991), Ericsson and Sharma (1998), Gowland (1991), Arestis, Hadjimatheou and Zis (1992)]. To the best of our knowledge, this paper represents the first attempt to examine whether financial progress has distorted the long-run money demand relationships in the three Gulf countries and assess the implications for the operation of monetary policy in these countries.1 It can be reasonably argued that if fast financial developments experienced by the three Gulf countries have not altered their long-run money demand models, then the relatively more sluggish financial developments in the rest of the GCC region (Kuwait, Oman and Saudi Arabia) would likely have had no effect on their long-run money demand equations either. We focus on the long-run money demand relations since a large and growing body of empirical research reveals that short-run money demand relations in both developed and developing economies are subject to unpredictable changes despite repeated efforts to adjust the estimated equations. Thus, the link between money growth and policy objectives over shorter periods has admittedly become tenuous at best. Consequently, the European Central Bank, and most recently the Bank of Japan, has exceedingly adopted longer-term monetary policy strategies.2 The rest of the paper is organized as follows. Section 2 outlines the methodology and data used. Section 3 reports the empirical results and provides some evidence of robustness. Section 4 offers concluding remarks and draws policy implications.

This paper empirically examines the nature of long-run money demand relations in three emerging economies in the Gulf region (Bahrain, the UAE and Qatar). We focus on whether financial developments that these countries have experienced in recent years have distorted the character of their underlying equilibrium money demand relations rendering them structurally unstable. Substantial changes in the financial markets can impact transaction costs of holding money and could induce significant shifts between money and money substitutes. Therefore, the increased sophistication of financial markets may hinder the stability of the underlying long-run money demand relations. This prompts concerns about the appropriateness of targeting monetary aggregates as a guide for monetary policy and whether monetary aggregates continue to possess the presumed tight relationship with the main policy objectives. Without a stable long-run money demand, monetary targeting to control inflation and promote economic growth would lose much of its appeal and itself becomes a source of economic disturbances. Our results suggest that the quick pace of financial developments in the three emerging economies have not caused undue shifts in the equilibrium money demand relations. All three emerging economies continue to exhibit well-behaving and reliable long-run money demand equations, although simple adjustments in some of these equations are necessary to account for the process of financial developments. Thus, it appears that monetary targeting still represents a proper long-run policy strategy in the three Gulf countries. However, additional evidence from direct tests of cointegration stability suggests the superiority of targeting the narrow M1 money stock in the UAE, while the evidence for Qatar supports the broader M2 money stock instead. As to Bahrain, both M1 and M2 exhibit reliable and structurally stable long-run money demand relations, making targeting either or both monetary aggregates an appropriate guide for monetary policy in Bahrain. In sum, the evidence we obtained suggests that monetary targeting is alive and well at least in the three emerging economies examined in this paper and that their Central Banks should maintain a close watch on money supply growth as a principal policy guide.