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Long and Short-Run Determinants of Money Demand in New Zealand: Evidence from Cointegration Analysis

  • Abbas Valadkhani

The existence of a stable demand for money is very important for the conduct of monetary policy even in this new era of inflation targeting. It is argued that previous work on the demand for money in New Zealand has been either not very satisfactory in a number of ways or outdated. This paper examines the long-run determinants of the demand for M3 employing the Johansen cointegration technique and quarterly data for the period 1988:1-2002:2. This paper finds, inter alia, that the demand for money is cointegrated with real income, the spread between interest on money and on non-money assets, the expected rate of inflation, and the real effective (trade weighted index) exchange rate.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20No%20132.pdf
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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 132.

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Date of creation: 20 Jan 2003
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Handle: RePEc:qut:dpaper:132
Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
Web page: http://www.bus.qut.edu.au/faculty/economics/
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  1. Laurence Ball, 1998. "Another Look at Long-Run Money Demand," NBER Working Papers 6597, National Bureau of Economic Research, Inc.
  2. Professor Lars E O Svensson, 2001. "Independent review of the operation of monetary policy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, March.
  3. G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 727-748.
  4. Katarina Juselius, 1991. "Long-run Relations in Australian Monetary Data," Discussion Papers 91-18, University of Copenhagen. Department of Economics.
  5. Abdur Chowdhury, 1995. "The demand for money in a small open economy: The case of Switzerland," Open Economies Review, Springer, vol. 6(2), pages 131-144, April.
  6. W A Razzak, 2001. "Money in the era of inflation targeting," Reserve Bank of New Zealand Discussion Paper Series DP2001/02, Reserve Bank of New Zealand.
  7. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages F370-80, June.
  8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  9. Bahmani-Oskooee, Mohsen & Shabsigh, Ghiath, 1996. "The demand for money in Japan: Evidence from cointegration analysis," Japan and the World Economy, Elsevier, vol. 8(1), pages 1-10, March.
  10. Neil R. Ericsson, 1998. "Empirical modeling of money demand," Empirical Economics, Springer, vol. 23(3), pages 295-315.
  11. Pierre Siklos, 1995. "Long-run and short-run money demand: which price deflator to use? Some evidence using New Zealand data," Applied Economics Letters, Taylor & Francis Journals, vol. 2(6), pages 199-202.
  12. Laidler, David, 1991. "The Quantity Theory Is Always and Everywhere Controversial--Why?," The Economic Record, The Economic Society of Australia, vol. 67(199), pages 289-306, December.
  13. Felmingham, Bruce & Zhang, Qing, 2001. "The Long Run Demand For Broad Money in Australia Subject to Regime Shifts," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 146-55, June.
  14. David Archer & Andy Brookes & Michael Reddell, 1999. "A cash rate system for implementing monetary policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
  15. Siklos, Pierre L. & Eckhold, Kelly R., 1997. "Income Velocity in Turbulent Times: The Role of Institutional Factors in the New Zealand Experience," Journal of Macroeconomics, Elsevier, vol. 19(1), pages 31-52, January.
  16. Julie Huxford & Michael Reddell, 1996. "Implementing monetary policy in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 59, December.
  17. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
  18. Orden, David & Fisher, Lance A, 1993. "Financial Deregulation and the Dynamics of Money, Prices, and Output in New Zealand and Australia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 273-92, May.
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