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Testing the Stability of Demand for Money in Tonga

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  • Kumar, Saten
  • Manoka, Billy
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    Abstract

    The aim of this study is to investigate if there is a stable demand for money for Tonga. Our empirical results based on the alternative time series approaches of LSE-Hendry's General to Specific (GETS) and Johansen's Maximum Likelihood (JML) show that there is a unique cointegrated and stable long run relationship between real narrow money, real income and nominal rate of interest. We found that the demand for money function for Tonga is stable and therefore targeting money supply by National Reserve Bank of Tonga is appropriate. We obtained consistent results with both methods and they indicate that income elasticity is unity and the interest rate elasticity is well- determined and significant.

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    File URL: https://mpra.ub.uni-muenchen.de/19300/1/MPRA_paper_19300.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19300.

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    Date of creation: 12 Jun 2008
    Publication status: Published in The Empirical Economics Letters 7.8(2008): pp. 835-843
    Handle: RePEc:pra:mprapa:19300
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    Keywords: Demand for Money; Stability of Money Demand Function; General to Specific Approach; Johansen Maximum Likelihood Method;

    Find related papers by JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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    1. 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.).
    2. 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.
    3. Saten Kumar, 2011. "Cointegration and the demand for energy in Fiji," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(1), pages 85-97.
    4. Rao, B. Bhaskara & Kumar, Saten, 2006. "Structural Breaks and the Demand for Money in Fiji," MPRA Paper 1549, University Library of Munich, Germany.
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    Cited by:

    1. Kumar, Saten, 2011. "Financial reforms and money demand: Evidence from 20 developing countries," Economic Systems, Elsevier, vol. 35(3), pages 323-334, September.
    2. Rup Singh, 2010. "Some empirical evidence on the demand for money in the Pacific Island countries," Studies in Economics and Finance, Emerald Group Publishing, vol. 27(3), pages 211-222, August.
    3. Saten Kumar, 2011. "Estimating export demand equations in selected Asian countries," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(1), pages 5-16, February.
    4. Ahad, Muhammad, 2015. "Financial Development and Money Demand Function: Cointegration, Causality and Variance Decomposition Analysis for Pakistan," MPRA Paper 70033, University Library of Munich, Germany.

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