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Long‐Run M3 Demand In South Africa: A Cointegrated Var Model

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  • K.r. Todani

Abstract

This paper presents a system cointegration analysis of a long‐run demand for money (measured in terms of M3) in South Africa. In particular, the paper estimates a cointegrated vector autoregression model, consisting of real money, income and the opportunity cost of holding money. Using a variety of theory consistent identification schemes, the money demand function is identified along with other two cointegrating relations, namely, an IS‐type relationship and a relationship relating inflation to the spread between long‐ and short‐term interest rates. The model shows that of the variables used, only income and real money are error‐correcting to the money demand relation. The money demand relation is found to be relatively stable over the sample period, when short‐run fluctuations are corrected for. The model further shows that the long‐run link between money and inflation is rather weak.

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  • K.r. Todani, 2007. "Long‐Run M3 Demand In South Africa: A Cointegrated Var Model," South African Journal of Economics, Economic Society of South Africa, vol. 75(4), pages 681-692, December.
    • Handle: RePEc:bla:sajeco:v:75:y:2007:i:4:p:681-692
    DOI: 10.1111/j.1813-6982.2007.00150.x
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    1. Christian Dreger & Hans-Eggert Reimers & Barbara Roffia, 2007. "Long-Run Money Demand in the New EU Member States with Exchange Rate Effects," Eastern European Economics, Taylor & Francis Journals, vol. 45(2), pages 75-94, April.
    2. Bruggeman, Annick & Donati, Paola & Warne, Anders, 2003. "Is the demand for euro area M3 stable?," Working Paper Series 255, European Central Bank.
    3. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679, Decembrie.
    4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Decembrie.
    5. By Gunnar Jonsson, 2001. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 1-2.
    6. Mr. Joaquim Vieira Ferreira Levy & Mr. Alessandro Calza & Mr. Dieter Gerdesmeier, 2001. "Euro Area Money Demand: Measuring the Opportunity Costs Appropriately," IMF Working Papers 2001/179, International Monetary Fund.
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    Cited by:

    1. Nidhal Mgadmi & Houssem Rachdi & Hichem Saidi & Khaled Guesmi, 2019. "On the Instability of Tunisian Money Demand: Some Empirical Issues with Structural Breaks," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(1), pages 153-165, March.
    2. Nidhal Mgadmi & Helmi Hamdi & Houssem Rachdi, 2016. "Non-Linear Modelling of Money Demand in Tunisia: Evidence from the STAR Model," Economics Bulletin, AccessEcon, vol. 36(4), pages 1975-1985.
    3. Mr. Arto Kovanen & Jihad Dagher, 2011. "On the Stability of Money Demand in Ghana: A Bounds Testing Approach," IMF Working Papers 2011/273, International Monetary Fund.
    4. Mr. Arto Kovanen, 2011. "Does Money Matter for Inflation in Ghana?," IMF Working Papers 2011/274, International Monetary Fund.

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