Payam MOHAMMAD ALIHA
Ph.D candidate, Universiti Kebangsaan Malaysia (UKM), Malaysia
Associate Professor Dr. at Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
Fathin FAIZAH SAID
Dr. at Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
This paper investigates the effect of financial innovation on real money demand in the United States using GARCH estimation technique between 1990 and 2016. Ratios of broad money stock to GDP and growth in net domestic credit to GDP were included in a conventional money demand function to account for the financial innovation. The results indicate that neither external shocks (financial innovation) nor internal shocks (previous years’ information) influence the volatility of the money demand.
Keywords: money demand, ARCH/GARCH, financial innovation, internal/external shock
JEL classification: C13, C40, C51, E40, E44