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The Australian Demand Function for Money: Another Look at Stability

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Listed:
  • Glenn Stevens

    (Reserve Bank of Australia)

  • Susan Thorp

    (Reserve Bank of Australia)

  • John Anderson

    (Reserve Bank of Australia)

Abstract

Opinion on the stability or otherwise of the demand for money in Australia can be characterised as divided. In this paper, several conventional single-equation models representing the demand for money are re-estimated with extended and revised data sets, and subjected to a range of stability tests. Some attention is paid to the possibility of heteroskedasticity in the residuals, which is important in the context of stability tests. Apart from testing for stability in a general sense, particular emphasis is given to the first half of the 1980’s, where wide-ranging financing deregulation might be expected to affect relationships between the money stock, income and interest rates. The conclusion is that it is difficult to accept the proposition that the conventional equations have not been subject to instability. This is particularly so for M3; the evidence is more mixed in the case of M1.

Suggested Citation

  • Glenn Stevens & Susan Thorp & John Anderson, 1987. "The Australian Demand Function for Money: Another Look at Stability," RBA Research Discussion Papers rdp8701, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp8701
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    Cited by:

    1. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
    2. Doug McTaggart & Colin Rogers, 1990. "Monetary Policy and the Terms of Trade: A Case for Monetary Base Control in Australia?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 23(2), pages 38-49.
    3. Karfakis, Costas I & Parikh, Ashok, 1993. "A Cointegration Approach to Monetary Targeting in Australia," Australian Economic Papers, Wiley Blackwell, vol. 32(60), pages 53-72, June.
    4. David Gruen & Glenn Stevens, 2000. "Australian Macroeconomic Performances and Policies in the 1990s," RBA Annual Conference Volume,in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.
    5. Tom Cusbert & Thomas Rohling, 2013. "Currency Demand during the Global Financial Crisis: Evidence from Australia," RBA Research Discussion Papers rdp2013-01, Reserve Bank of Australia.
    6. Felmingham, B. & Zhang, Q., 2000. "The Long Run Demand for Broad Money in Australia Subject to Regime Shifts," Papers 2000-07, Tasmania - Department of Economics.
    7. Akhand Hossain, 2012. "Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009," Empirical Economics, Springer, vol. 42(3), pages 767-790, June.
    8. Malcolm Edey, 1997. "The Debate on Alternatives for Monetary Policy in Australia," RBA Annual Conference Volume,in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
    9. 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 146-155, June.
    10. Stemp, Peter J, 1991. "Optimal Weights in a Check-List of Monetary Indicators," The Economic Record, The Economic Society of Australia, vol. 67(196), pages 1-13, March.

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