A Simultaneous Model for the Demand for Money in Bangladesh

Abstract

This study considers a simultaneous model that represents interrelationship between nominal money and real output. The money demand equation includes wholesale price index of agricultural products, exchange rate, and volume of real output. The output model, on the other hand, considers a dichotomous variable representing the volume of aid of the affluent countries (higher or lower than commitment), investment volume and nominal money. The OLS and 2SLS estimation methods have been used to obtain the parameters of the model. The estimated results suggest that the simultaneous equation model in the present case fits the data reasonably well.