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The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function

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  • Hiew, Lee-Chea
  • Puah, Chin-Hong
  • Habibullah, Muzafar Shah

Abstract

Using the consumer theory approach as suggested by Habibullah (2009), this study aims to shed new light on monetary authority by incorporating advertising expenditure, a variable that has been neglected in the past, into study of the money demand function in Indonesia. In addition, different measurements of monetary aggregates (simple-sum and Divisia money) have been used in the estimation to provide better insight into the selection of a suitable monetary policy variable for the case of Indonesia. Empirical findings from the error-correction model (ECM) indicate that the advertising expenditure variable has a significant impact on the demand for money. Furthermore, as compared to simple-sum money, the model that used Divisia monetary aggregates rendered more plausible estimation results in the estimation of money demand function.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50223.

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Date of creation: 2013
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Handle: RePEc:pra:mprapa:50223

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Keywords: Advertising Expenditure; Divisia Money; Money Demand;

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References

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  1. Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, Elsevier, vol. 14(1), pages 11-48, September.
  2. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416 National Bureau of Economic Research, Inc.
  3. Chin-Hong, Puah & Lee-Chea, Hiew, 2010. "Financial Liberalization, Weighted Monetary Aggregates and Money Demand in Indonesia," MPRA Paper 31731, University Library of Munich, Germany.
  4. Taylor, Lester D & Weiserbs, Daniel, 1972. "Advertising and the Aggregate Consumption Function," American Economic Review, American Economic Association, American Economic Association, vol. 62(4), pages 642-55, September.
  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Choi-Meng Leong & Chin-Hong Puah & Shazali Abu Mansor & Evan Lau, 2010. "Testing the Effectiveness of Monetary Policy in Malaysia Using Alternative Monetary Aggregation," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, National Council of Applied Economic Research, vol. 4(3), pages 321-338, August.
  7. Darrat, Ali F. & Chopin, Marc C. & Lobo, Bento J., 2005. "Money and macroeconomic performance: revisiting divisia money," Review of Financial Economics, Elsevier, Elsevier, vol. 14(2), pages 93-101.
  8. Yu, Qiao & Tsui, Albert K., 2000. "Monetary services and money demand in China," China Economic Review, Elsevier, Elsevier, vol. 11(2), pages 134-148, December.
  9. Chin-Hong Puah & Muzafar Shah Habibullah & Venus Khim-Sen Liew, 2010. "Is money neutral in stock market? The case of Malaysia," Economics Bulletin, AccessEcon, vol. 30(3), pages 1852-1861.
  10. Saving, Thomas R, 1971. "Transactions Costs and the Demand for Money," American Economic Review, American Economic Association, American Economic Association, vol. 61(3), pages 407-20, June.
  11. Daniel Daianu & Laurian Lungu, 2005. "Inflation Targeting, Between Rhetoric and Reality. The Case of Transition Economies," William Davidson Institute Working Papers Series wp743, William Davidson Institute at the University of Michigan.
  12. Barnett, William A & Offenbacher, Edward K & Spindt, Paul A, 1984. "The New Divisia Monetary Aggregates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(6), pages 1049-85, December.
  13. Leigh Drake & Terence C. Mills, 2005. "A New Empirically Weighted Monetary Aggregate for the United States," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 43(1), pages 138-157, January.
  14. Mingxia Zhang & Richard J. Sexton, 2002. "Optimal Commodity Promotion when Downstream Markets are Imperfectly Competitive," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 84(2), pages 352-365.
  15. Guy Debelle & Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1998. "Inflation Targeting as a Framework for Monetary Policy," IMF Economic Issues 15, International Monetary Fund.
  16. Muzafar Shah Habibullah, 1998. "Divisia money and income in Indonesia: some results from error-correction models, 1981:1-1994:4," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 5(6), pages 387-391.
  17. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, Elsevier, vol. 1(2), pages 145-149.
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