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Financial Deregulation and Stability of Money Demand: The Australian Case

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  • Hirokatsu Asano

Abstract

This paper analyses the Australian economy in the post‐war period. The analysis examines stationarity and cointegrating relationship among output, interest rate and money. The analysis shows that Australia has had a stable cointegrating relationship among output, interest rate and money during the post‐war period although the country deregulated its financial sector in the 1980's. Australia's money demand function fails to reject the hypothesis that the interest elasticity of money demand is 0.5. In addition, one specification of the country's money demand function fails to reject the hypothesis that the income elasticity of money demand is unity. The specification is the Vector Error Correction Model that includes real output, real balances, an interest rate, and a deregulation dummy variable, with the lag length of three.

Suggested Citation

  • Hirokatsu Asano, 1999. "Financial Deregulation and Stability of Money Demand: The Australian Case," Australian Economic Papers, Wiley Blackwell, vol. 38(4), pages 407-421, December.
    • Handle: RePEc:bla:ausecp:v:38:y:1999:i:4:p:407-421
    DOI: 10.1111/1467-8454.00065
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    Cited by:

    1. Saten Kumar & Don J. Webber, 2013. "Australasian money demand stability: application of structural break tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 1011-1025, March.
    2. Omer, Muhammad, 2009. "Stability of money demand function in Pakistan," MPRA Paper 35306, University Library of Munich, Germany.
    3. Akhand Hossain, 2012. "Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009," Empirical Economics, Springer, vol. 42(3), pages 767-790, June.
    4. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.

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