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Modelling Demand For Broad Money In Australia

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  • ABBAS VALADKHANI

Abstract

The existence of a valid long-run money demand function is still important for the conduct of monetary policy. It is argued that previous work on the demand for money in Australia has not been very satisfactory in a number of ways. This paper examines the long- and short-run determinants of the demand for broad money employing the Johansen cointegration technique. Using quarterly data for the period 1976:3-2002:2, this paper finds, inter alia, that the demand for broad money is cointegrated with real income, the rate of return on 10-year Treasury bonds, the cash rate and inflation. It appears that a disequilibrium in the demand for money can affect the efficacy of interest rate policy in the long run via its impact on future output growth and output gap. Copyright Blackwell Publishing Ltd/ University of Adelaide and Flinders University 2005..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Australian Economic Papers.

Volume (Year): 44 (2005)
Issue (Month): 1 (03)
Pages: 47-64

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Handle: RePEc:bla:ausecp:v:44:y:2005:i:1:p:47-64

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X

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  1. Neil R. Ericsson, 1998. "Empirical modeling of money demand," Empirical Economics, Springer, vol. 23(3), pages 295-315.
  2. Bernd Hayo, 1999. "The Demand For Money In Austria," Macroeconomics 9902012, EconWPA.
  3. Coenen, Günter & Vega, Juan Luis, 1999. "The demand for M3 in the euro area," Working Paper Series 0006, European Central Bank.
  4. Laurence Ball, 1998. "Another Look at Long-Run Money Demand," NBER Working Papers 6597, National Bureau of Economic Research, Inc.
  5. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
  6. A.M. Cohen & W.E. Norton, 1969. "Demand Equations for Money," RBA Research Discussion Papers rdp03, Reserve Bank of Australia.
  7. Adrian Blundell-Wignall & Susan Thorp, 1987. "Money Demand, Own Interest Rates and Deregulation," RBA Research Discussion Papers rdp8703, Reserve Bank of Australia.
  8. Neil R. Ericsson & David F. Hendry & Hong-Anh Tran, 1993. "Cointegration, seasonality, encompassing, and the demand for money in the United Kingdom," International Finance Discussion Papers 457, Board of Governors of the Federal Reserve System (U.S.).
  9. Felmingham, Bruce & Zhang, Qing, 2001. "The Long Run Demand For Broad Money in Australia Subject to Regime Shifts," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 146-55, June.
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Cited by:
  1. Kumar, Saten & Webber, Don J., 2010. "Australasian money demand stability: Application of structural break tests," MPRA Paper 27569, University Library of Munich, Germany.
  2. Hossain, Akhand Akhtar, 2009. "Structural change in the export demand function for Indonesia: Estimation, analysis and policy implications," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 260-271.
  3. Fassil Fanta, 2012. "Macroeconomic uncertainty, excess liquidity and stability of money demand (M3) in Australia," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(4), pages 325-344.
  4. 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.
  5. Hossain, Akhand Akhtar, 2010. "Monetary targeting for price stability in Bangladesh: How stable is its money demand function and the linkage between money supply growth and inflation?," Journal of Asian Economics, Elsevier, vol. 21(6), pages 564-578, December.

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