Divisia Monetary Aggregates and Economic Activities in Asian Developing Economies

This book proposes that 'money does matter for monetary policy purposes' for ten SEACEN (South East Asian Central Banks) countries investigated: Indonesia, Malaysia, Myanmar, Nepal, Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand. Despite the financial liberalization that is underway, the author finds evidence that the monetary aggregates ? both the Simple-sum and Divisia aggregates ? have close relationships with both the price level and nominal income. This suggests that they are appropriate intermediate factors. The book concludes that an important policy implication for these countries is that the use of monetary aggregates as indicators for monetary policy can be effective in the presence of liquidity constraints. Since financial liberalization has not weakened the relationship between monetary aggregates and income in the Asian developing countries, the use of monetary aggregates to predict future growth in income will be effective. This would also imply that the behavior of income velocity in the SEACEN countries is adequately explained by the standard money demand function with income and the interest rate as its determinants.