Financial Innovations and Demand for Money in India

Abstract

Demand for money and its factors reveal the nature and direction of relationship between newlinethe monetary sector and the real sector of an economy. The relationship between financial newlineinnovation and money demand is well documented for the developed economies and there seems newlineto be still some gaps in the literature regarding developing economies, specifically to India. The newlinepresent study is therefore an attempt to the fill the research gap by investigating the impact of newlinefinancial innovations on demand for money in India both at a macro and micro level. newline(i) Objectives of the study newline1. To study the growth and trend of the monetary aggregate, macro economic variables and the newlinefinancial innovations that form substitutes for cash transactions in India during the study newlineperiod 2005-06 to 2014-15. newline2. To verify the existence of long run relationship between M1 and its determinants for the newlinestudy period 2005-06 to 2014-15. newline3. To investigate the determinants of M1 (narrow money) and analyse the extent to which the newlinefinancial innovations has impacted M1. newline4. To examine the direction and strength of the casuality between the variables used in the study newlineduring the study period 2005-06 to 2014-15. newline5. To test the stability of the coefficients of the estimated demand for money function. newline6. To analyze at the micro level, the factors that stimulate the adoption of financial innovations newlineamong households and its impact on transaction demand for currency, with specific reference newlineto Coimbatore city.