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A Cointegration Approach to Monetary Targeting in Australia

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  • Karfakis, Costas I
  • Parikh, Ashok

Abstract

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

Suggested Citation

  • Karfakis, Costas I & Parikh, Ashok, 1993. "A Cointegration Approach to Monetary Targeting in Australia," Australian Economic Papers, Wiley Blackwell, vol. 32(60), pages 53-72, June.
  • Handle: RePEc:bla:ausecp:v:32:y:1993:i:60:p:53-72
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    References listed on IDEAS

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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. 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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    7. Friedman, Benjamin M, 1988. "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, vol. 78(2), pages 440-445, May.
    8. repec:syd:wpaper:160 is not listed on IDEAS
    9. 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.
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    12. W. Lee Hansen, 1967. "Introduction," Journal of Human Resources, University of Wisconsin Press, vol. 2(3), pages 291-292.
    13. 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.
    14. Hafer, R W & Jansen, Dennis W, 1991. "The Demand for Money in the United States: Evidence from Cointegration Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 155-168, May.
    15. 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.
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    Citations

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    Cited by:

    1. Sahar Bahmani, 2008. "Stability of the Demand for Money in the Middle East," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(1), pages 62-83, January.
    2. Mohsen Bahmani-oskooee & Charikleia Economidou, 2005. "How stable is the demand for money in Greece?," International Economic Journal, Taylor & Francis Journals, vol. 19(3), pages 461-472.
    3. Felmingham, B. & Zhang, Q., 2000. "The Long Run Demand for Broad Money in Australia Subject to Regime Shifts," Papers 2000-07, Tasmania - Department of Economics.
    4. Sharifi-Renani, Hosein, 2007. "Demand for money in Iran: An ARDL approach," MPRA Paper 8224, University Library of Munich, Germany.
    5. Sahar Bahmani, 2008. "Stability of the Demand for Money in the Middle East," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(1), pages 62-83, January.
    6. Bahmani-Oskooee Mohsen & Shin Sungwon, 2002. "Stability of the Demand for Money in Korea," International Economic Journal, Taylor & Francis Journals, vol. 16(2), pages 85-95.
    7. 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.
    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 146-155, June.
    9. Bahmani-Oskooee, Mohsen, 2001. "How stable is M2 money demand function in Japan?," Japan and the World Economy, Elsevier, vol. 13(4), pages 455-461, December.
    10. Mohsen Bahmani-Oskooee & Hafez Rehman, 2005. "Stability of the money demand function in Asian developing countries," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 773-792.
    11. Akinlo, A. Enisan, 2006. "The stability of money demand in Nigeria: An autoregressive distributed lag approach," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 445-452, May.
    12. BAHMANI-OSKOOEE, Mohsen & Maki Nayeri, Majid, 2017. "Policy Uncertainty and the Demand for Money in Australia: An Asymmetry Analysis," MPRA Paper 82846, University Library of Munich, Germany.
    13. Fassil Fanta, 2013. "Financial Deregulation, Economic Uncertainty and the Stability of Money Demand in Australia," Economic Papers, The Economic Society of Australia, vol. 32(4), pages 496-511, December.

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