Some empirical evidence on the demand for money in the Pacific Island countries
Purpose – The purpose of this paper is to analyze narrow money demand functions for the Pacific Island countries (PICs) and evaluate their stability. The selected PICs are Fiji, Vanuatu, Samoa (SAM), Solomons and the Papua New Guinea. The stability of the demand for money is vital for the formulation of the monetary policy. Design/methodology/approach – The augmented Dicky-Fuller method is employed to test the time series properties of the variables. Alternative time series techniques such as general to specific (GETS) and Johansen maximum likelihood (JML) are used with annual data from 1974 to 2004 (except for SAM with data from 1980 to 2004) to estimate the narrow money demand equations. To draw inferences relative to the stability of the parameters, the study applies the cumulative recursive sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ). Findings – The results from the time series approaches of GETS and JML suggest that real income, nominal rate of interest and real narrow money are cointegrated. The CUSUM and CUSUMSQ stability test results indicate that the demand for money functions for these countries are stable and, therefore, the respective monetary authorities may consider targeting money supply in their conduct of monetary policy. It is argued that the financial sector reforms and liberalization is yet to have any significant effects on the money demand in the PICs. Research limitations/implications – The methods of estimation does not allow for structural breaks in the cointegrating relationship. It is hoped that future research may focus on using the structural break techniques and also investigate the stability of the demand for broad money in the PICs. Further due to limitations in the data, the authors were only able to select five PICs. Originality/value – This is the first paper in the literature that provides long-run estimates and stability results of the narrow money demand using the newest time series techniques for a group of PICs over the period 1974-2004.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 27 (2010)
Issue (Month): 3 (August)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=sef Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Poole, 1969.
"Optimal choice of monetary policy instruments in a simple stochastic macro model,"
Special Studies Papers
2, Board of Governors of the Federal Reserve System (U.S.).
- William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
- Singh, Rup & Kumar, Saten, 2007.
"Application of the Alternative Techniques to Estimate Demand for Money in Developing Countries,"
19295, University Library of Munich, Germany.
- Rup Singh & Saten Kumar, 2012. "Application of the alternative techniques to estimate demand for money in developing countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(2), pages 43-63, July-Dece.
- B. Bhaskara Rao & Saten Kumar, 2009.
"Cointegration, structural breaks and the demand for money in Bangladesh,"
Taylor & Francis Journals, vol. 41(10), pages 1277-1283.
- Rao, B. Bhaskara & Kumar, Saten, 2007. "Cointegration, structural breaks and the demand for money in Bangladesh," MPRA Paper 1546, University Library of Munich, Germany.
- Kumar, Saten, 2009. "A Re-examination of Private Consumption in Fiji," MPRA Paper 18706, University Library of Munich, Germany.
- 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.
- B Bhaskara Rao & Rup Singh, 2005. "A Cointegration And Error Correction Approach To Demand For Money In Fiji: 1971-2002," Macroeconomics 0511012, EconWPA.
- Saten Kumar, 2007. "The Stability of Demand for Money in Bangladesh: Time Series Methods," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 27-35, May.
- B. Bhaskara Rao & Rup Singh, 2006. "Demand for money for Fiji with PcGets," Applied Economics Letters, Taylor & Francis Journals, vol. 13(15), pages 987-991.
- Kumar, Saten & Manoka, Billy, 2008. "Testing the Stability of Demand for Money in Tonga," MPRA Paper 19300, University Library of Munich, Germany.
- Saten Kumar, 2008. "Income and Price Elasticities of Exports in Philippines," The IUP Journal of Applied Economics, IUP Publications, vol. 0(6), pages 40-46, November.
- Chinna Kannapiran, 2001. "Stability of Money Demand and Monetary Policy in Papua New Guinea (PNG): An Error Correction Model Analysis," International Economic Journal, Taylor & Francis Journals, vol. 15(3), pages 73-84.
- Subramanian S. Sriram, 1999. "Survey of Literature on Demand for Money: Theoretical and Empirical Work with Special Reference to Error-Correction Models," IMF Working Papers 99/64, International Monetary Fund.
- Rao, B. Bhaskara & Kumar, Saten, 2009.
"A panel data approach to the demand for money and the effects of financial reforms in the Asian countries,"
Elsevier, vol. 26(5), pages 1012-1017, September.
- Rao, B. Bhaskara & Kumar, Saten, 2008. "A Panel Data Approach to the Demand for Money and the Effects of Financial Reforms in the Asian Countries," MPRA Paper 6565, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:eme:sefpps:v:27:y:2010:i:3:p:211-222. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.