Scholarlink

<p>Money demand (Md) stability is crucial to monetary policy effectiveness because unstable money-income relationships weaken policy transmission and reduce the reliability of monetary aggregates as policy indicators. This study examines whether financial inclusion (FI) has altered the composition, specification and stability of Md in India during 2011Q1–2023Q4, a period characterized by rapid FI, digital financial transformation, demonetization, and the COVID-19 pandemic. A composite Financial Inclusion Index (FII) capturing access, usage, and digital intensity is constructed using Principal Component Analysis (PCA). The empirical analysis employs the Autoregressive Distributed Lag (ARDL) bounds testing approach and an Error Correction Model (ECM) to investigate both long-run and short-run dynamics. The results reveal stable long-run cointegrating relationships for both narrow and broad money. FI exerts a statistically significant and negative effect on narrow money demand, suggesting that more access to formal financial services and digital payment systems reduces reliance on transaction balances. However, FI does not significantly impact broad Money demand, indicating a limited effect on portfolio-oriented monetary holdings. This paper contributes to the literature by explicitly incorporating FI into the Money demand framework, distinguishing its effects across narrow (M1) and broad (M3) monetary aggregates, and providing evidence that FI affects transaction-oriented Money demand while preserving long-run monetary stability. The significant error-correction terms and stability diagnostics reveal that FI re-parameterizes Money demand without undermining long-run stability.</p>

错误：搜索内容不能为空，请输入英文关键词
错误：关键词超出字数限制，请精简
高级检索

Financial inclusion and money demand stability: An empirical analysis in India

  • 期刊论文

  • 发表日期：

    2026年7月30日

查看全文
  • Imran Ahmad Ahanger,
  • Shumila Cheshti

摘要

Money demand (Md) stability is crucial to monetary policy effectiveness because unstable money-income relationships weaken policy transmission and reduce the reliability of monetary aggregates as policy indicators. This study examines whether financial inclusion (FI) has altered the composition, specification and stability of Md in India during 2011Q1–2023Q4, a period characterized by rapid FI, digital financial transformation, demonetization, and the COVID-19 pandemic. A composite Financial Inclusion Index (FII) capturing access, usage, and digital intensity is constructed using Principal Component Analysis (PCA). The empirical analysis employs the Autoregressive Distributed Lag (ARDL) bounds testing approach and an Error Correction Model (ECM) to investigate both long-run and short-run dynamics. The results reveal stable long-run cointegrating relationships for both narrow and broad money. FI exerts a statistically significant and negative effect on narrow money demand, suggesting that more access to formal financial services and digital payment systems reduces reliance on transaction balances. However, FI does not significantly impact broad Money demand, indicating a limited effect on portfolio-oriented monetary holdings. This paper contributes to the literature by explicitly incorporating FI into the Money demand framework, distinguishing its effects across narrow (M1) and broad (M3) monetary aggregates, and providing evidence that FI affects transaction-oriented Money demand while preserving long-run monetary stability. The significant error-correction terms and stability diagnostics reveal that FI re-parameterizes Money demand without undermining long-run stability.