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A Cointegration Approach to Monetary Targeting in Australia

  • Karfakis, Costas I
  • Parikh, Ashok

Cointegration analysis between real money (M3), output, interest rates and the effective exchange rate indicates the existence of a cointegrating vector which can be used to stabilize nominal GDP in the long run. An interesting aspect of the empirical investigation is the evidence that the long term interest rate adjusts to clear disequilibrium in money market. This suggests that carefully applied monetary targeting may still be a viable policy in Australia. Copyright 1993 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

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

Volume (Year): 32 (1993)
Issue (Month): 60 (June)
Pages: 53-72

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Handle: RePEc:bla:ausecp:v:32:y:1993:i:60:p:53-72
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  1. James M. Boughton, 1991. "Long-Run Money Demand in Large Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 1-32, March.
  2. Hafer, R.W. & Jansen, D.W., 1990. "The Demand For Money In The United States: Evidence From Cointegration Tests," Papers 9010, Erasmus University of Rotterdam - Institute for Economic Research.
  3. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  4. Friedman, Benjamin M, 1988. "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, vol. 78(2), pages 440-45, May.
  5. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers 928, Cowles Foundation for Research in Economics, Yale University.
  6. Adrian Blundell-Wignall & Susan Thorp, 1987. "Money Demand, Own Interest Rates and Deregulation," RBA Research Discussion Papers rdp8703, Reserve Bank of Australia.
  7. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
  8. 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.
  9. Glenn Stevens & Susan Thorp, 1989. "The Relationship between Financial Indicators and Economic Activity: Some Further Evidence," RBA Research Discussion Papers rdp8903, Reserve Bank of Australia.
  10. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
  11. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  12. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
  13. W. Lee Hansen, 1967. "Introduction," Journal of Human Resources, University of Wisconsin Press, vol. 2(3), pages 291-292.
  14. Miller, Stephen M, 1991. "Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 139-54, May.
  15. Glenn Stevens & Susan Thorp & John Anderson, 1987. "The Australian Demand Function for Money: Another Look at Stability," RBA Research Discussion Papers rdp8701, Reserve Bank of Australia.
  16. Boehm, Ernst A & Martin, Vance L, 1989. "An Investigation into the Major Causes of Australia's Recent Inflation and Some Policy Implications," The Economic Record, The Economic Society of Australia, vol. 65(188), pages 1-15, March.
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