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A Cointegration And Error Correction Approach To Demand For Money In Fiji: 1971-2002

Author

Listed:
  • B Bhaskara Rao

    (University of the South Pacific)

  • Rup Singh

    (University of the South Pacific)

Abstract

Demand for money is an important macroeconomic relationship. Its stability has implications for the choice of monetary policy targets. This paper estimates demand for narrow money in Fiji and evaluates its robustness and stability. It is found that there is a well determined stable demand for money in Fiji, for three decades, from 1971 to 2002 and its dynamics are adequately captured by the cointegration and error- correction models. Income and interest rate elasticities are found to be significant.

Suggested Citation

  • B Bhaskara Rao & Rup Singh, 2005. "A Cointegration And Error Correction Approach To Demand For Money In Fiji: 1971-2002," Macroeconomics 0511012, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0511012
    Note: Type of Document - pdf; pages: 20
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0511/0511012.pdf
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    References listed on IDEAS

    as
    1. Rao, B. Bhaskara, 1993. "Unit root hypothesis, new classical and Keynesian models," Economics Letters, Elsevier, vol. 41(1), pages 47-52.
    2. R. W. Hafer & Ali Kutan, 2001. "Financial Innovation And The Demand For Money: Evidence From The Philippines," International Economic Journal, Taylor & Francis Journals, vol. 17(1), pages 17-27.
    3. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May.
    4. Pradhan, Basanta K. & Subramanian, A., 2003. "On the stability of demand for money in a developing economy: Some empirical issues," Journal of Development Economics, Elsevier, vol. 72(1), pages 335-351, October.
    5. 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.
    6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    7. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
    8. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-459, October.
    9. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    10. Friedman, Milton & Schwartz, Anna J, 1991. "Alternative Approaches to Analyzing Economic Data," American Economic Review, American Economic Association, vol. 81(1), pages 39-49, March.
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    Citations

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    Cited by:

    1. B. Bhaskara Rao, 2007. "Estimating short and long-run relationships: a guide for the applied economist," Applied Economics, Taylor & Francis Journals, vol. 39(13), pages 1613-1625.
    2. Lee, Chien Chiang & Chang, Chun Ping, 2012. "The Demand for Money in China: A Reassessment Using the Bounds Testing Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 74-94, March.
    3. Nidhal Mgadmi & Helmi Hamdi & Houssem Rachdi, 2016. "Non-Linear Modelling of Money Demand in Tunisia: Evidence from the STAR Model," Economics Bulletin, AccessEcon, vol. 36(4), pages 1975-1985.
    4. P K Narayan & S Narayan, 2008. "Estimating the Demand for Money in an Unstable Open Economy: The Case of the Fiji Islands," Economic Issues Journal Articles, Economic Issues, vol. 13(1), pages 71-91, March.
    5. Yutaka Kurihara, 2016. "Demand for money under low interest rates in Japan," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(4), pages 12-19, August.
    6. Rup Singh & Saten Kumar, 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.
    7. T.K. Jayaraman, 2008. "Exchange market pressure in a small Pacific Island country: a study of Fiji: 1975-2005," International Journal of Social Economics, Emerald Group Publishing, vol. 35(12), pages 985-1004, October.

    More about this item

    Keywords

    Demand for money; Monetary policy; Income and interest rate elasticities; Cointegration; Error correction; Unit roots; Stability.;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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