Testing the Stability of Demand for Money in Tonga
AbstractThe aim of this study is to investigate if there is a stable demand for money for Tonga. Our empirical results based on the alternative time series approaches of LSE-Hendry's General to Specific (GETS) and Johansen's Maximum Likelihood (JML) show that there is a unique cointegrated and stable long run relationship between real narrow money, real income and nominal rate of interest. We found that the demand for money function for Tonga is stable and therefore targeting money supply by National Reserve Bank of Tonga is appropriate. We obtained consistent results with both methods and they indicate that income elasticity is unity and the interest rate elasticity is well- determined and significant.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 19300.
Date of creation: 12 Jun 2008
Date of revision:
Publication status: Published in The Empirical Economics Letters 7.8(2008): pp. 835-843
Demand for Money; Stability of Money Demand Function; General to Specific Approach; Johansen Maximum Likelihood Method;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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- Rao, B. Bhaskara & Kumar, Saten, 2006. "Structural Breaks and the Demand for Money in Fiji," MPRA Paper 1549, University Library of Munich, Germany.
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18703, University Library of Munich, Germany.
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