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Australasian money demand stability:Application of structural break tests

  • Don J. Webber

    ()

    (Department of Business Economics, Auckland University of Technology and UWE, Bristol)

  • Saten Kumar

    (Department of Business Economics, Auckland University of Technology and Department of Economics)

Estimates of the demand for money provide important foundations for monetary policy setting but if the estimation technique does not explicitly account for structural changes then such estimates will be biased. This paper presents an investigation into the level and stability of money demand (M1) for Australia and New Zealand over the 1960-2009 period and demonstrates that both countries experienced regime shifts; Australia also experienced an intercept shift. Application of four time series methods provide consistent results with 1984 and 1998 break dates. CUSUM and CUSUMSQ stability tests reveal that M1 demand functions were unstable over the 1984 to 1998 period for both countries although tests for stability are not rejected thereafter.

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File URL: http://carecon.org.uk/DPs/1101.pdf
File Function: First version, 2011
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Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 1101.

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Length: 35 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:uwe:wpaper:1101
Contact details of provider: Postal: 0117 328 3610
Phone: 0117 328 3610
Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
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