Modelling the demand for money in New Zealand
The paper reports on the results of estimating both the long- and short-run demand for money function in New Zealand, 1990–2000 using quarterly data and cointegration- and error-correction-based models. It is found that price, real income and interest rate variables are integrated of order 1 or I(1). Using Phillips and Hansen [Rev. Econ. Stud. 57 (1990) 99] fully modified estimation methods, we establish the existence of a long-run cointegrating relationship among these three variables. Using the residuals from this model to represent the error-correction mechanism (ECM) term, we identify a short-run model utilising Hendry’s general-to-specific (GTS) approach. The model is shown to satisfy the typical diagnostic requirements of a multiple regression model. Three event dummies are used to capture key events of relevance to monetary policy in New Zealand.
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Volume (Year): 64 (2004)
Issue (Month): 1 ()
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