Payam MOHAMMAD ALIHA
Ph.D student, Universiti Kebangsaan Malaysia (UKM), Malaysia
payammaliha@gmail.com
Tamat SARMIDI
Associate Professor Dr. at Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
tamat@ukm.edu.my
Fathin FAIZAH SAID
Associate Professor Dr. at Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
fatin@ukm.edu.my
Abstract
This study investigates the effects of financial innovations on the demand for money using panel data for 9 European countries from 2014 to 2018. Such models assist in controlling for unobserved heterogeneity when this heterogeneity is constant over time and correlated (fixed effects) or uncorrelated (random effects) with independent variables. Hausman test and Breusch and Pagan Lagrangian multiplier test (LM) both indicate that the random effects model is appropriate. We use the conventional money demand that is enriched with the number of automated teller machines (ATM) and the number of point-of-sale (POS) terminals to proxy for the financial innovations. The estimation result of the chosen random effects regression indicate that the elasticity of the demand for real money to POS is about 10 percent meaning that money demand is not elastic with regard to POS. Also, the estimated coefficient of ATM is not significant.
Keywords: EU, money demand, random effects, fixed effects, financial innovation, panel data
JEL classification: C13, C40, C51, E40, E44