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Modelling Demand For Broad Money In Australia

  • ABBAS VALADKHANI

The existence of a valid long-run money demand function is still 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. 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 inflation. It appears that a disequilibrium in the demand for money can affect the efficacy of interest rate policy in the long run via its impact on future output growth and output gap. Copyright Blackwell Publishing Ltd/ University of Adelaide and Flinders University 2005..

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

Volume (Year): 44 (2005)
Issue (Month): 1 (03)
Pages: 47-64

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Handle: RePEc:bla:ausecp:v:44:y:2005:i:1:p:47-64
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  1. Bernd Hayo, 1999. "The Demand For Money In Austria," Macroeconomics 9902012, EconWPA.
  2. 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.).
  3. Neil R. Ericsson, 1998. "Empirical modeling of money demand," Empirical Economics, Springer, vol. 23(3), pages 295-315.
  4. A.M. Cohen & W.E. Norton, 1969. "Demand Equations for Money," RBA Research Discussion Papers rdp03, Reserve Bank of Australia.
  5. Coenen, Günter & Vega, Juan Luis, 1999. "The demand for M3 in the euro area," Working Paper Series 0006, European Central Bank.
  6. Ball, Laurence, 2001. "Another look at long-run money demand," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 31-44, February.
  7. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
  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. Adrian Blundell-Wignall & Susan Thorp, 1987. "Money Demand, Own Interest Rates and Deregulation," RBA Research Discussion Papers rdp8703, Reserve Bank of Australia.
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