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Modelling Demand for Broad Money in Australia

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  • Abbas Valadkhani

Abstract

The existence of a stable demand for money is very 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 and a short-run dynamic model. 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 the rate of inflation.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2002/Valadkhani,%20A%20-%20No.%20120.pdf
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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 120.

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Date of creation: 20 Dec 2002
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Handle: RePEc:qut:dpaper:120

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Postal: GPO Box 2434, BRISBANE QLD 4001
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Web page: http://www.bus.qut.edu.au/faculty/economics/
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Keywords: Demand for Money; Money and Interest Rates; Cointegration; Australia.;

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References

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  1. 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.).
  2. Hayo, Bernd, 2000. "The demand for money in Austria," ZEI Working Papers B 06-2000, ZEI - Center for European Integration Studies, University of Bonn.
  3. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
  4. G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 727-748.
  5. Adrian Blundell-Wignall & Susan Thorp, 1987. "Money Demand, Own Interest Rates and Deregulation," RBA Research Discussion Papers rdp8703, Reserve Bank of Australia.
  6. A.M. Cohen & W.E. Norton, 1969. "Demand Equations for Money," RBA Research Discussion Papers rdp03, Reserve Bank of Australia.
  7. Laurence Ball, 1998. "Another Look at Long-Run Money Demand," NBER Working Papers 6597, National Bureau of Economic Research, Inc.
  8. 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.
  9. Neil R. Ericsson, 1998. "Empirical modeling of money demand," Empirical Economics, Springer, vol. 23(3), pages 295-315.
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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, 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.
  3. 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.
  4. 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.
  5. 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.

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