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The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function

Author

Listed:
  • Hiew, Lee-Chea
  • Puah, Chin-Hong
  • Habibullah, Muzafar Shah

Abstract

Using the consumer theory approach as suggested by Habibullah (2009), this study aims to shed new light on monetary authority by incorporating advertising expenditure, a variable that has been neglected in the past, into study of the money demand function in Indonesia. In addition, different measurements of monetary aggregates (simple-sum and Divisia money) have been used in the estimation to provide better insight into the selection of a suitable monetary policy variable for the case of Indonesia. Empirical findings from the error-correction model (ECM) indicate that the advertising expenditure variable has a significant impact on the demand for money. Furthermore, as compared to simple-sum money, the model that used Divisia monetary aggregates rendered more plausible estimation results in the estimation of money demand function.

Suggested Citation

  • Hiew, Lee-Chea & Puah, Chin-Hong & Habibullah, Muzafar Shah, 2013. "The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function," MPRA Paper 50223, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:50223
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    File URL: https://mpra.ub.uni-muenchen.de/50223/1/MPRA_paper_50223.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Advertising Expenditure; Divisia Money; Money Demand;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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