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Volume :10 Issue : 39 1984      Add To Cart                                                                    Download

THE DEMAND FOR MONEY IN KUWAIT

Auther : By: Dr. Zakaria Abdul Hameed Bassha

The demand for money has been one of the economic relationships, which has been given great attention in the last few years. In addition to its importance as a financial asset, the importance of money as a policy tool, has grown sharply. Central Banks have increasingly come to use rates of growth of monetary aggregates, as a mean of assessing the manifold economic variables and activities of the economy-Chief amongst such variables are, the rate of price increase and the rate of economic growth.

This paper aims at conducting a comprehensive study about the demand for money in Kuwait, particularly when it is taken into account that the growth rates of the Kuwaiti economy have conspicuously increased during the past ten years.

This study consists of two sections, namely:

  1. A theoretical frame-work, which tackles subjects such as: the definition of money and the independent variables of demand function for money.
  2. The demand for money in Kuwait from the point of view of both variables and functions.

In the applied part of the study which deals with the case of Kuwait, the most important variables which might systematically affect the demand for money in Kuwait, were thoroughly discussed. This is followed by an analysis of the provisions suggested for the lagged adjustment of actual money holdings to the desired money stock. The analysis is, however, essentially based on the estimated rules of the coefficients of demand function. Empirical results were also analyzed on the light of statistical tests, which are usually applied to similar case studies.

It has been shown that the demand for money in Kuwait in inversely related to the rate of inflation and to the interest between Commercial Banks. Statistical tests, however, have shown that these relations are not highly significant. Furthermore, it has been shown that the demand for money in Kuwait is directly related to government spending and to the rate of change in the share price index of Kuwait Shareholding Companies.

It has been postulated in the terminating part of this paper, that the sudden and unstable economic and financial expansion, which took place in Kuwait over the past ten years requires great caution and serious consideration before embarking upon the formulation of future monetary and financial policies.

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May 18, 2017

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