Money demand in Indonesia and its forecasting to 2033

Su oso, A i Imam; Bah i, Sai ul; Achsani, Noe Azam; Suhendi; Sa i, Linda Ka lina
A icle
Money demand in Indonesia and i s o ecas ing o 2033
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Su oso, A i Imam; Bah i, Sai ul; Achsani, Noe Azam; Suhendi; Sa i, Linda Ka lina
(2025) : Money demand in Indonesia and i s o ecas ing o 2033, Economies, ISSN 2227-7099, MDPI,
Basel, Vol. 13, Iss. 4, pp. 1-15,
h ps://doi.o g/10.3390/economies13040098
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Recei ed: 17 Feb ua y 2025
Re ised: 25 Ma ch 2025
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Published: 1 Ap il 2025
Ci a ion: Su oso, A. I., Bah i, S.,
Achsani, N. A., Suhendi, & Sa i, L. K.
(2025). Money Demand in Indonesia
and I s Fo ecas ing o 2033. Economies,
13(4), 98. h ps://doi.o g/10.3390/
economies13040098
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A icle
Money Demand in Indonesia and I s Fo ecas ing o 2033
A i Imam Su oso 1,* , Sai ul Bah i 2, Noe Azam Achsani 1, Suhendi 1and Linda Ka lina Sa i 1
1School o Business, IPB Uni e si y, Bogo 16151, Indonesia; [email p o ec ed] (N.A.A.);
[email p o ec ed] (S.); [email p o ec ed] (L.K.S.)
2PERURI, Jaka a 12160, Indonesia; [email p o ec ed]
*Co espondence: a i imamsu [email p o ec ed]
Abs ac : This s udy aims o iden i y he p ima y ac o s in luencing he demand o money
in Indonesia and o p o ide o ecas s h ough 2033. The esea ch employs wo me hodolo-
gies: ime se ies econome ics and machine lea ning, u ilizing da a spanning om he i s
qua e o 2010 (2010Q1) o he ou h qua e o 2023 (2023Q4). The esul s o he s udy
indica e ha , in he long e m, he demand o money in Indonesia is in luenced by wo
main de e minan s: G oss Domes ic P oduc (GDP) and Financial Ins i u ion Dep h (FID).
In he sho e m, he signi ican de e minan s include in e es a es, in la ion a es, GDP
lag, FID lag, and elec ici y access. The o ecas esul s sugges ha he demand o money
in Indonesia is p ojec ed o expe ience posi i e g ow h, eaching IDR 16,855,845 billion
by 2033. This inding unde sco es he con inued impo ance o physical cu ency in he
Indonesian economy. Based on hese esul s, his s udy se es as a guideline o policy-
make s in managing he demand o money by conside ing he a iables ha can ei he
inc ease o dec ease his demand. The posi i e o ecas o he demand o money also
highligh s i s signi ican ole in suppo ing a s able Indonesian economy in he u u e.
Keywo ds: business analy ics; Indonesia; money demand; ime se ies analysis
1. In oduc ion
Issues ela ed o he demand o money in a coun y a e c ucial o policymake s, pa -
icula ly he cen al bank, in main aining he s abili y o economic g ow h om a mone a y
pe spec i e (Baha umshah e al.,2009). Howe e , he demand o money is di icul o
p edic due o changes in consume and business beha io ega ding he use o money, pa -
icula ly bankno es and coins. This si ua ion equi es egula o y adjus men s in esponse
o hese beha io al changes, which ha e implica ions o he ins abili y o money demand
wi hin a coun y (Lucas & Nicolini,2015). Indonesia, as one o he de eloping coun ies, is
acing challenges ela ed o he s abili y o money demand. Economic de elopmen s, along
wi h changes in consume and business beha io , ha e an impac on money ci cula ion in
Indonesia. S a is ical da a indica e ha he demand o bo h pape money and deposi s
has con inued o inc ease o e he pas decade. Figu e 1illus a es ha he demand o
bankno es and coins con inues o inc ease along wi h he g ow h in demand o deposi s,
highligh ing he impo ance o sus ainable cash paymen s wi hin he economy. In con as ,
he g ow h a e o bankno es in Indonesia indica es a luc ua ing end, wi h he highes
g ow h obse ed in 2020, likely in luenced by speci ic economic o social ac o s du ing ha
pe iod. This end unde sco es he dynamic na u e o cash usage in esponse o changing
economic condi ions and p e e ences due o a ious de e minan s and he impo ance o
moni o ing money mo emen s om a cu ency demand pe spec i e o ensu e an e icien
paymen sys em. The e o e, i highligh s ha p edic ions ela ed o money demand a e
Economies 2025,13, 98 h ps://doi.o g/10.3390/economies13040098
Economies 2025,13, 98 2 o 15
a c i ical aspec ha can suppo economic s abili y, pa icula ly in Indonesia, which is
cu en ly expe iencing luc ua ions in money demand. The de elopmen o s udies ela ed
o money demand has been an impo an conce n o esea che s, pa icula ly in he con-
ex o speci ic coun ies o e he pas decade (Asiedu e al.,2021;Bahmani-Oskooee &
Bahmani,2015;Ben-Salha & Jaidi,2014;Dou,2018;Me a & Pop Silaghi,2018;Opoku,2017).
This is closely ela ed o he impo an ole o money as he cen e o mode n economic
de elopmen , as i os e s public con idence in economic alue (McLeay e al.,2014). The
magni ude o a coun y’s money demand has a causal ela ionship wi h i s mac oeconomic
indica o s, which a e o en measu ed by GDP, inequali y, and in la ion (Adil e al.,2022;
Hicham,2020;Khan e al.,2021;S ylianou e al.,2024). The s abili y o money demand is
one o he main objec i es o mone a y policy, al hough he g ow h o money demand is
equen ly associa ed wi h an inc ease in a coun y’s mac oeconomic indica o s (Achsani,
2010;Nel e al.,2020). To ensu e he e ec i e implemen a ion o a coun y’s mone a y
policy, i is impo an o analyze he ac o s ha in luence money demand. Howe e , he
exis ing li e a u e p ima ily ocuses on he de e minan s o money demand and o en
neglec s he de elopmen o p edic i e models o u u e mone a y needs.
Economies2025,13,xFORPEERREVIEW2o 15

de e minan sand heimpo anceo moni o ingmoneymo emen s omacu encyde-
mandpe spec i e oensu eanefficien paymen sys em.The e o e,i highligh s ha p e-
dic ions ela ed omoneydemanda eac i icalaspec  ha cansuppo economics abili y,
pa icula lyinIndonesia,whichiscu en lyexpe iencing luc ua ionsinmoneydemand.
Thede elopmen o s udies ela ed omoneydemandhasbeenanimpo an conce n o 
esea che s,pa icula lyin hecon ex o speci iccoun ieso e  hepas decade(Asiedu
e al.,2021;Bahmani-Oskooee&Bahmani,2015;Ben-Salha&Jaidi,2014;Dou,2018;Me a
&PopSilaghi,2018;Opoku,2017).Thisisclosely ela ed o heimpo an  oleo money
as hecen e o mode neconomicde elopmen ,asi  os e spubliccon idenceineconomic
alue(McLeaye al.,2014).Themagni udeo acoun y’smoneydemandhasacausal
ela ionshipwi hi smac oeconomicindica o s,whicha eo enmeasu edbyGDP,ine-
quali y,andin la ion(Adile al.,2022;Hicham,2020;Khane al.,2021;S ylianoue al.,
2024).Thes abili yo moneydemandisoneo  hemainobjec i eso mone a ypolicy,
al hough heg ow ho moneydemandis equen lyassocia edwi haninc easeinacoun-
y’smac oeconomicindica o s(Achsani,2010;Nele al.,2020).Toensu e heeffec i e
implemen a iono acoun y’smone a ypolicy,i isimpo an  oanalyze he ac o s ha 
in luencemoneydemand.Howe e , heexis ingli e a u ep ima ily ocuseson hede-
e minan so moneydemandando enneglec s hede elopmen o p edic i emodels
o  u u emone a yneeds.

Figu e1.Theg ow h o cu encyanddemanddeposi sinIndonesia om2013 o2023.Sou ce:
S a is icsIndonesia(2024).
The e o e, hiss udyaims oadd ess hisgapbyp edic ing he endo moneyde-
mand.Toachie e hisobjec i e, hede e minan  ac o smus beexaminedaskeyd i e s
o  u u emoneydemandmo emen s.Thep edic ionscouldassis policymake s,pa ic-
ula ly hecen albankand hep in ingindus y,ines ima ing heapp op ia e alueo 
moneydemand, he ebymain ainingeconomics abili y.
Basedon heissues ela ed o hedemand o moneyinIndonesia,whichcon inues
o luc ua eannually, hiss udyseeks oadd esshowmoneydemandwille ol ein he
u u e:willi con inue oinc easeo dec ease?Byp edic ing hedemand o moneyin
Indonesia,policymake swillha eadi ec ioninde e miningapp op ia emone a ypoli-
cies omain ain hes abili yo  heIndonesianeconomyand op omo e inancialinclu-
sion,pa icula lyina easwi hlimi edaccess odigi al inancialse ices.On heo he 
hand, hemoneyp in ingindus yalsohasa u u edi ec ion o syne gywi h hecen al
bank,including hep ocu emen andp in ingo bankno esaswellaswas emanagemen 
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Cu ency (in Billion) Demand Deposi s (in Billion) Cu ency G ow h (%)
Figu e 1. The g ow h o cu ency and demand deposi s in Indonesia om 2013 o 2023. Sou ce:
S a is ics Indonesia (2024).
The e o e, his s udy aims o add ess his gap by p edic ing he end o money
demand. To achie e his objec i e, he de e minan ac o s mus be examined as key
d i e s o u u e money demand mo emen s. The p edic ions could assis policymake s,
pa icula ly he cen al bank and he p in ing indus y, in es ima ing he app op ia e alue
o money demand, he eby main aining economic s abili y.
Based on he issues ela ed o he demand o money in Indonesia, which con inues
o luc ua e annually, his s udy seeks o add ess how money demand will e ol e in he
u u e: will i con inue o inc ease o dec ease? By p edic ing he demand o money
in Indonesia, policymake s will ha e a di ec ion in de e mining app op ia e mone a y
policies o main ain he s abili y o he Indonesian economy and o p omo e inancial
inclusion, pa icula ly in a eas wi h limi ed access o digi al inancial se ices. On he o he
hand, he money p in ing indus y also has a u u e di ec ion o syne gy wi h he cen al
bank, including he p ocu emen and p in ing o bankno es as well as was e managemen
wi hin his sec o (Bah i e al.,2022). This is pa icula ly ele an in Indonesia, whe e
he majo i y o he popula ion s ill elies on cash ansac ions, al hough he adop ion o
digi al paymen s is inc easing in u ban a eas. In conclusion, he de elopmen o a eliable
model o o ecas he amoun o money in ci cula ion is essen ial o e ec i e mone a y
Economies 2025,13, 98 3 o 15
planning and inclusi e inancial de elopmen . This s udy speci ically ocuses on M1
(na ow money) due o he p e alen use o bankno es and coins in Indonesia. Fu he mo e,
o ecas ing Indonesian money demand un il 2033 could assis policymake s in o mula ing
app op ia e mone a y policies o s abilize he Indonesian mone a y sys em and p omo e
economic g ow h.
The s uc u e o his a icle is as ollows: Sec ion 1p o ides an in oduc ion ha
ou lines he p oblem add essed in his s udy. Sec ion 2p esen s a li e a u e e iew, high-
ligh ing ele an heo ies and p e ious indings ela ed o he demand o money. Sec ion 3
desc ibes he me hodology used, including esea ch ma e ials and analy ical echniques.
Sec ions 4and 5discuss he esul s and p o ide compa isons wi h p e ious s udies. Finally,
Sec ion 6concludes he a icle by summa izing he main indings and o e ing manage ial
implica ions and limi a ions o he s udy.
2. Li e a u e Re iew
Se e al key heo ies explain he de elopmen o he de e minan s o money demand.
Acco ding o Fishe (1911), he demand o money is in luenced by he le el o nominal
income. Meanwhile, Keynes (1936) a gued ha he demand o money depends on bo h he
le el o nominal income and in e es a es. F iedman (1956) p oposes ha he de e minan s
o money demand in a coun y can be in luenced by h ee ac o s: he le el o income,
in e es a es, and in la ion expec a ions, which e lec he elas ici y o income wi h espec
o money demand. In addi ion, Baumol (1952) and Tobin (1958) e ealed ha he liquidi y
p e e ence o asse s wi h high expec ed e u ns, a heo e ical app oach o he money
demand model in e ms o cash managemen and he s o age o o he asse s, can be
conside ed a de e minan o a coun y’s money demand, alongside he h ee p e iously
men ioned ac o s. Fu he mo e, Mundell (1963) posi ed ha he exchange a e is a p ima y
de e minan , in addi ion o income and in e es a es. The de elopmen o paymen sys ems
based on c edi ca ds, debi ca ds, and ATMs could also be ega ded as a signi ican ac o in
de e mining money demand (Boescho en,1998). The e o e, he issue o inancial inno a ion
is an essen ial conside a ion, as he exclusion o his ac o may lead o misspeci ica ion in
he analysis (A au e al.,1995).
Se e al p e ious s udies ha e examined he ac o s in luencing he demand o money
h ough a ious case s udies o coun ies in ecen yea s. A p e ious s udy by Fa azmand
and Mo adi (2015) analyzed he de e minan s o money demand in se e al Middle Eas e n
coun ies om 1980 o 2013 using he au o eg essi e dis ibu ed lag (ARDL) app oach.
Thei analysis e ealed ha in la ion and exchange a es had a nega i e e ec on money
demand, while income exhibi ed a posi i e and signi ican e ec . Agga wal (2016) analyzed
he de e minan s o money demand in India using coin eg a ion and eg ession es s
wi h he o dina y leas squa es (OLS) app oach om 1996 o 2013 wi h qua e ly da a.
The esul s o he s udy indica ed ha he e was no long- e m ela ionship be ween he
independen and dependen a iables. Fu he mo e, he OLS analysis e ealed ha GDP
and in e es a es posi i ely a ec ed money demand in he sho e m, speci ically in
he case o M1. Opoku (2017) analyzed he de e minan s o money demand in Ghana
using he au o eg essi e dis ibu ed lag (ARDL) app oach om 1970 o 2012. His analysis
ound ha in la ion and in e es a es had a nega i e e ec on money demand in bo h
he sho and long e m. In con as , inancial inno a ion, as p oxied by he M2/M1 a io,
exhibi ed a nega i e and signi ican e ec only in he sho e m. In his s udy, he exchange
a e was ound o ha e a posi i e and signi ican e ec in he sho e m. Dou (2018)
analyzed he de e minan s o money demand in China using linea econome ic models
and s uc u al ec o au o eg ession (SVAR) om 1996 o 2016. His empi ical esul s
indica ed ha income, in e es a es, and in la ion expec a ions signi ican ly in luenced
Economies 2025,13, 98 4 o 15
China’s money demand. Addi ionally, inancial inno a ion, go e nmen deb , capi al
mobili y, and exchange a e subs i u ion played a mino ole in he demand o b oad
money. Asiedu e al. (2021) analyzed he demand o long- e m money in 16 Wes A ican
coun ies using he au o eg essi e dis ibu ed lag (ARDL) app oach om 1982 o 2019. The
esul s indica ed ha income le els had a posi i e and signi ican e ec on money demand.
Howe e , in his con ex , LIBOR and o eign in e es a es nega i ely a ec ed he demand
o money ac oss he 16 coun ies.
In he Indonesian con ex , se e al p e ious s udies ha e been conduc ed; howe e ,
he a en ion gi en o iden i ying he de e minan s is s ill limi ed. James (2005) ound ha
inancial libe aliza ion is he key d i e owa ds money demand and i s luc ua ion in
Indonesia. Hossain (2007) also in es iga ed he demand o na ow money in Indonesia
om 1970 o 2005 by using eg ession analysis and ound ha he eal income, in la ion,
and he e u n owa ds o eign inancial asse s had a signi ican impac on he na ow
money demand. Wijaya e al. (2022) analyzed he d i e s o money demand in Indonesia
om 2006 o 2020 by applying he e o co ec ion model (ECM) and showed ha he
GDP and exchange a e ha e a posi i e impac on he Indonesian money demand, while
deposi a es ha e a nega i e e ec . Fa ihah and Pasa ibu (2024) examined he de e minan
ac o s a ec ing money demand in Indonesia (M2) by using ECM om 2018 o 2023. The
esul ound ha he in e es a es and he US dolla exchange o upiah a e he ac o s
in luencing Indonesian money demand (M2).
Based on some p e ious indings, he a ia ion o key d i e s s ill elies on he mac oe-
conomic ac o , which means ha he imp o emen o he money demand model mus
be implemen ed by adding an addi ional a iable. On he o he hand, se e al p e ious
s udies ha e explo ed he p edic ion o money demand in a ious coun ies. These s udies
commonly employ econome ic me hods o analyze he demand o money in o de o
iden i y he d i ing ac o s and make u u e p edic ions, especially in ECM analysis. In In-
donesia, he luc ua ions in money demand could p o ide aluable insigh s o ad ancing
knowledge in his a ea. On he o he hand, he no el con ibu ion o his s udy, compa ed
o o he esea ch ela ed o he case in Indonesia, is he applica ion o machine lea ning as a
p edic i e ool o money demand, p o iding al e na i e p edic ions ha can be u ilized by
policymake s. The combina ion o econome ic me hods and machine lea ning esul s in a
ange o al e na i e p edic ions ha can be conside ed by policymake s. The e o e, his
s udy aims o add ess he esea ch gap by ocusing on he speci ic con ex o Indonesian
money demand g ow h and i s implica ions o mone a y policy and economic planning.
3. Me hodology
This s udy employs an econome ic model o achie e i s objec i es, d awing on es-
ablished heo ies ega ding he de e minan s o money demand. Key ac o s conside ed
include income le els, in e es a es, in la ion, exchange a es, liquidi y p e e ences, and
ad ancemen s in paymen sys em echnology. Na ow money (M1) is u ilized as an in-
dica o o money demand, ocusing on he p edic ed demand o physical cu ency in
ci cula ion, such as bankno es and coins. Acco ding o some p e ious s udies, he e a e
se e al a iables ha can be adop ed in his analysis, including economic indica o s such
as GDP, in e es a es, in la ion, and exchange a es, as well as a echnology indica o . Ad-
di ionally, he de elopmen o digi al paymen sys ems in luences he ac o s de e mining
money demand in he u u e. The e o e, we include a a iable ep esen ing he pe cen age
o he popula ion wi h access o elec ici y as a ac o a ec ing money demand. The ease

Economies 2025,13, 98 5 o 15
o accessing elec ici y can impac he money supply o GDP a io (Owolabi e al.,2021).
The e o e, he model o p edic ing money demand in Indonesia is as ollows:
MD = (GDP, IR, FID, AEL, INF, EXR) (1)
whe e MD is he na ow money demand (M1), which e e s o he demand o bankno es
and coins. GDP is he eal income le el, IR is he in e es a e o he cen al bank in
Indonesia, FID is he Indonesian inancial ins i u ion index, AEL is he pe cen age o he
popula ion ha can access elec ici y in Indonesia, INF is he in la ion a e in Indonesia,
and EXR is he nominal exchange a e. The unc ion can be w i en in a log-linea o m,
as ollows:
LnMD = B0+B1LnGDP + B2IR + B3FID + B4AEL + B5INF + B6LnEXR + e (2)
whe e Ln is he na u al loga i hm, B
0
is a cons an , while B
1
-B
6
a e he coe icien s o each
a iable, and e
is he e o a e ha explains o he ac o s de e mining money demand
ha canno be explained in he model.
The analysis in his s udy comp ises se e al s eps, which include he ollowing:
1. P e-p ocessing da a
Da a p e-p ocessing ensu es eadiness o analysis, wi h disagg ega ion con e ing
annual da a in o highe - equency o ma s (e.g., qua e ly) o mee speci ic analy ical needs.
U ilizing he Chow-Lin me hod, his p ocess employed eg ession wi h auxilia y a iables
o dis ibu e da a consis en ly while p ese ing i s o iginal dynamics, he eby suppo ing
high- esolu ion analyses such as end o economic cycle s udies.
2. Time Se ies Da a Decomposi ion
This s udy employed decomposi ion p io o conduc ing he eg ession analysis,
using he Hod ick–P esco (HP) il e as one o he s a is ical me hods o decomposing
ime se ies da a in o a long- e m end componen and a sho - e m cyclical componen .
This me hod is commonly used in economic analysis o iden i y undamen al ends. By
minimizing a loss unc ion ha balances he i o ac ual da a wi h end smoo hness, he
HP il e adjus s he smoo hing pa ame e (
λ
) based on da a equency (e.g., 100 o annual
da a, 1600 o qua e ly da a, and 14,400 o mon hly da a).
3. Es ima ing and Fo ecas ing Analysis
This s udy employed wo analy ical app oaches o es ima ion and o ecas ing: ime
se ies analysis and machine lea ning, ensu ing comp ehensi e esul s. The ime se ies
app oach used he e o co ec ion model (ECM) o examine long- e m ela ionships and
sho - e m adjus men s in non-s a iona y da a, as well as he au o eg essi e dis ibu ed
lag (ARDL) me hod o analyze bo h sho - and long- e m dynamics wi hou equi ing all
a iables o be s a iona y a he same le el. In his app oach, he s udy also employed
he se ies in eg a ed a he i s di e ence and had coin eg a ion among he a iables.
Consequen ly, lagged a iables we e implemen ed o cap u e bo h sho - un and long- un
dynamics, as de i ed om Equa ions (2) and (3) as ollows:
∆LnMD =λ0+θ0LnMD −1+ΣB1∆LnGDP −i+ΣB2∆IR −i+ΣB3∆FID −i+ΣB4∆AEL −i+ΣB5∆INF −i+ΣB6∆LnEXR −i+ϕECM −1+ e (3)
Machine lea ning me hods, on he o he hand, we e used o cap u e complex, non-
linea pa e ns in da a. Techniques include andom o es (RF), an ensemble-based me hod
ha enhances p edic ion accu acy; mul i a ia e adap i e eg ession spline (MARS), which
lexibly cap u es non-linea ela ionships and in e ac ions; and suppo ec o machine-
linea (SVM-Lin), designed o obus p edic ions in linea da a. This combined app oach
Economies 2025,13, 98 6 o 15
p o ides an in-dep h analysis o dynamic a iable ela ionships while unco e ing pa e ns
beyond hose iden i ied by adi ional me hods. Addi ionally, his s udy also employed
uni a ia e me hods o o ecas Indonesian money demand.
The da a o his s udy we e collec ed om a ious sou ces co e ing he pe iod
om 2010Q1 o 2023Q4. The sou ce o money demand (MD) o M1 and in e es a es
(IR) was he Cen al Bank o Indonesia. GDP and in la ion (INF) da a we e ob ained
om S a is ics Indonesia. The inancial ins i u ion index (FID) was collec ed om he
In e na ional Mone a y Fund (IMF), while access o elec ici y (AEL) and he exchange a e
(EXR) da a we e ga he ed om Wo ld Bank Open Da a and In es ing.com. A summa y o
hese a iables is p esen ed in Table 1.
Table 1. The ope a ional de ini ions o he a iables.
No a ion Desc ip ion Uni Sou ce
MD
Money demand p oxied by cu ency
p oduc s, such as bankno es and coin
ou side comme cial and u al banks
IDR Cen al Bank o Indonesia (BI)
GDP G oss Domes ic P oduc (GDP) in
cons an based on expendi u e (2010) IDR S a is ics Indonesia
IR Cen al Bank o Indonesia (BI) Ra e % Cen al Bank o Indonesia (BI)
FID Financial Ins i u ion Index - In e na ional Mone a y Fund (IMF)
AEL Access o Elec ici y (% o popula ion) % Wo ld Bank Open Da a
INF
In la ion a e in Indonesia, using 2018 as
he base yea % S a is ics Indonesia
EXR The nominal exchange a e om IDR o
USD IDR/USD In es ing.Com
4. Resul s
Be o e es ima ing he de e minan s o money demand in Indonesia, he esul s o
he s a iona i y es as an ini ial s ep in he analysis a e p esen ed in Table 2. Da a a e
conside ed s a iona y i i does no exhibi a speci ic mo emen pa e n, such as a end. In
o he wo ds, s a iona y da a does no display a consis en upwa d o downwa d di ec ion
o e ime. A se ies is deemed s a iona y i i has a cons an mean, cons an a iance, and
cons an co a iance ac oss a ious lags. This s udy employed he augmen ed Dickey–Fulle
(ADF) uni oo es o assess da a s a iona i y, bo h a he le el and he i s di e ence. The
le el e e s o he ini ial alue wi hou ans o ma ion o absolu e adjus men , while he
i s di e ence ep esen s he change be ween a speci ic pe iod and he p eceding pe iod.
S a iona i y can also be de e mined based on he p obabili y alue; i he p obabili y alue
is less han he 5% signi icance le el, he da a a e conside ed s a iona y. The esul s o
he ADF uni oo es indica e ha all a iables a e s a iona y a he i s di e ence wi h
a signi icance le el o 5%, excep o he elec ici y a iable, which is signi ican a he
10% le el. This inding is co obo a ed by he p obabili y alues o each obse a ion (see
Table 2). Fu he mo e, based on McKinnon’s c i ical alues, all a iables examined in his
s udy a e s a iona y a he signi icance le els o 1%, 5%, and 10%. Following he s a iona y
analysis, his s udy p edic ed money demand in Indonesia using he e o co ec ion model
(ECM) and he au o eg essi e dis ibu ed lag (ARDL) app oach. The selec ion o he
op imal model is based on e alua ion c i e ia such as adjus ed R-squa ed (R
2
adj), which
assesses he model’s accu acy in explaining he dependen a iable while accoun ing o
he numbe o independen a iables, and he Akaike in o ma ion c i e ion (AIC), which
iden i ies he model ha achie es he bes balance be ween goodness-o - i and complexi y.
The combina ion o hese c i e ia ensu es ha he selec ed model is no only accu a e bu
also e icien in elucida ing he ela ionships be ween a iables.
Economies 2025,13, 98 7 o 15
Table 2. S a iona y es .
Va iable Tes
Equa ion
Le el Fi s -Di e ence
ADF p-Value ADF p-Value
MD
T end and
In e cep
−1.587 0.786 −6.394 0.000 **
In e cep −3.448 0.013 ** −0.852 0.796
None 0.303 0.770 −1.259 0.189
GDP
T end and
In e cep
−2.145 0.510 −3.080 0.075
In e cep −1.150 0.689 −3.218 0.024 **
None 2.812 0.999 −1.408 0.147
I
T end and
In e cep
−2.072 0.550 −4.772 0.002 **
In e cep −1.988 0.291 −4.772 0.000 **
None −0.439 0.520 −4.817 0.000 **
FID
T end and
In e cep
−2.912 0.167 −6.408 0.000 **
In e cep −1.770 0.392 −6.417 0.000 **
None 3.685 1.000 −5.343 0.000 **
AEL
T end and
In e cep 0.266 0.998 −3.443 0.058 *
In e cep −2.339 0.164 −2.086 0.251
None 1.273 0.947 −1.750 0.076 *
INF
T end and
In e cep
−2.763 0.217 −2.884 0.176
In e cep −2.018 0.278 −2.899 0.053 *
None −1.017 0.274 −2.910 0.004 **
EXR
T end and
In e cep
−1.063 0.926 −5.823 0.000 **
In e cep −1.529 0.512 −5.708 0.000 **
None 2.311 0.995 −4.643 0.000 **
No es: ** signi ican a 5% le el o signi icance; * signi ican a 10% le el o signi icance.
In he i s es ima ion (ECM) p esen ed in Table 3, he esul s indica e ha he a i-
ables MD(-1), GDP(-1), FID(-1), D(IR), D(GDP), and D(FID) signi ican ly in luence money
demand (MD). The a iable MD(-1) exhibi s a nega i e coe icien o
−
0.5748, sugges ing
ha money demand in he p e ious pe iod is in e sely ela ed o cu en money demand,
wi h high signi icance (P ob. = 0.0000). This inding implies ha an inc ease in money
demand in he p e ious pe iod ends o educe money demand in he subsequen pe-
iod, po en ially e lec ing a co ec ion mechanism wi hin he mone a y sys em aimed a
main aining equilib ium in money ci cula ion. Con e sely, GDP(-1) and FID(-1) show a
signi ican posi i e ela ionship wi h money demand (MD), wi h coe icien s o 1.0472 and
4.3351, espec i ely. This indica es ha economic g ow h (GDP) and he dep h o inancial
ins i u ions (FID) in he p e ious pe iod enhance money demand in he cu en pe iod,
e lec ing ha economic ac i i ies and inancial sec o de elopmen suppo an inc ease
in money demand. Addi ionally, changes in GDP (D(GDP)) and FID (D(FID)) also ha e a
signi ican posi i e impac on MD, wi h coe icien s o 1.0198 and 6.0626, espec i ely.
Economies 2025,13, 98 8 o 15
Table 3. ECM o money demand p edic ion.
Va iable Coe icien S d. E o -S a is ic P ob.
C−6.8843 2.0032 −3.4367 0.0014 **
MD(-1) −0.5748 0.1213 −4.7390 0.0000 **
IR(-1) −0.0088 0.0079 −1.1151 0.2713
INF(-1) 0.0014 0.0062 0.2236 0.8242
GDP(-1) 1.0472 0.2688 3.8960 0.0004 **
FID(-1) 4.3351 1.8568 2.3347 0.0245 **
EXR(-1) −0.1029 0.1103 −0.9326 0.3565
AEL(-1) 0.0007 0.0142 0.0470 0.9628
D(IR) 0.0353 0.0150 2.3515 0.0236 **
D(INF) −0.0099 0.0074 −1.3426 0.1868
D(GDP) 1.0198 0.2708 3.7656 0.0005 **
D(FID) 6.0626 3.1038 1.9533 0.0576 *
D(EXR) 0.0823 0.2333 0.3528 0.7260
D(AEL) −0.0523 0.0285 −1.8395 0.0731 *
No es: ** signi ican a 5% le el o signi icance; * signi ican a 10% le el o signi icance.
This sugges s ha economic g ow h and he deepening o inancial ins i u ions di ec ly
con ibu e o an inc ease in money demand. Addi ionally, changes in in e es a es (D(IR))
exhibi a signi ican posi i e ela ionship, wi h a coe icien o 0.0353 (P ob. = 0.0236). This
indica es ha a sho - e m ise in in e es a es may be associa ed wi h inc eased money
demand, po en ially due o shi s in ma ke beha io o in es men lows.
Howe e , some a iables, such as IR(-1), INF(-1), and EXR(-1), a e no signi ican in
he model, al hough hey exhibi ce ain di ec ional ela ionships. The nega i e coe icien s
o IR(-1) and EXR(-1) indica e ha an inc ease in in e es a es o a dep ecia ion o he
exchange a e in he p e ious pe iod ends o educe money demand, while in la ion
(INF(-1)) shows a weak posi i e ela ionship. O e all, his model indica es ha economic
ac o s such as GDP and FID, bo h in lagged and di e enced o ms, play a majo ole in
in luencing MD. Posi i e ela ionships sugges ha inc eases in hese ac o s d i e money
demand g ow h, while nega i e ela ionships e lec co ec ion mechanisms o p essu es
ha educe money demand o main ain economic s abili y.
In he second analysis using he ARDL app oach, se e al a iables ha e di e en
es ima ions compa ed o he ECM esul s (see Table 4). Based on he selec ion o op imal
lags using he Akaike in o ma ion c i e ion (AIC), he bes model iden i ied is ARDL (4, 2,
3, 4, 4, 2, 2). This indica es ha he lags employed o each independen a iable ha e been
op imized o p oduce a model ha achie es he bes balance be ween accu acy (goodness-
o - i ) and complexi y. This di e se selec ion o lags enables he model o mo e accu a ely
cap u e he dynamics o he empo al ela ionships be ween a iables, bo h in he sho
and long e m. Fu he mo e, his model e lec s he lexibili y o he ARDL app oach
in accommoda ing a iables wi h a ying le els o s a iona i y, he eby p o iding mo e
eliable es ima ion esul s.
Based on Table 4, he es ima ion esul s o he ARDL model wi h he e o co ec ion
model (ECM) p o ide aluable insigh s in o he sho - e m and long- e m ac o s in luenc-
ing money demand (MD). In he long e m, he signi ican nega i e coe icien o MD(-1)
(
−
0.4939) highligh s a co ec ion mechanism ha adjus s app oxima ely 49.39% o any
imbalance pe pe iod, ensu ing s abili y in MD. Economic g ow h (GDP) and inancial
ins i u ion dep h (FID) play a c ucial ole in d i ing MD. The posi i e coe icien o GDP(-
1) (1.0251) sugges s ha s ong economic g ow h in he pas signi ican ly inc eased MD
by boos ing economic ac i i y and liquidi y. Simila ly, he posi i e coe icien o FID(-1)
(4.7582) indica es ha inancial de elopmen , including inc eased c edi access and inancial
se ices, enhances MD o e ime. In he sho e m, dynamic changes in a iables such as
Economies 2025,13, 98 15 o 15
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