An Investigation into the Sensitivity of Money Demand to Interest Rates in the Philippines

Abstract

Studies into the effect of interest rates on money demand have been done on various emerging markets. This paper aims to look at the relationship between money demand and interest rates in the Philippines. An error correction model is estimated to see the effects of output and interest rates on money demand.The results show that the coefficients for 91-day Treasury Bill rates are negative and insignificant. However, the coefficients for 364-day Treasury Bill rates are negative and significant suggesting that they may be better predictors of money demand as opposed to 91-day rates.