Abstract:

This article takes a time series perspective to examine the  stability of money demand function and its determinants in  Laos. We applied the ARDL bounds testing approach to cointegration in the presence of  structure break and Granger causality in the VECM framework. We find that money demand function is stable incorporating the exchange rate fluctuations. The VECM Granger causality analysis reveals the feedback effect between money demand and exchange rate in the long run. This implies that exchange rate plays an important role in money demand in case of dollarized economy like Laos.