MODELLING DEMAND FOR BROAD MONEY IN AUSTRALIA*

Abbas Valadkhani

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

The existence of a valid long-run money demand function is still important for the conduct of monetary policy. It is argued that previous work on the demand for money in Australia has not been very satisfactory in a number of ways. This paper examines the long- and short-run determinants of the demand for broad money employing the Johansen cointegration technique. Using quarterly data for the period 1976:3–2002:2, this paper finds, inter alia, that the demand for broad money is cointegrated with real income, the rate of return on 10-year Treasury bonds, the cash rate and inflation. It appears that a disequilibrium in the demand for money can affect the efficacy of interest rate policy in the long run via its impact on future output growth and output gap.

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References

1992Testing the null hypothesis of stationarity against the alternative of a unit root 1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1995Likelihood-Based Inference in Cointegrated Vector Autoregressive Models 1991Modeling the demand for narrow money in the United Kingdom and the United States 1997The Demand for Money: Theories, Evidence, and Problems 2003Money and inflation in the euro area: A case for monetary indicators?2001The demand for M3 in the euro area 2001Another look at long-run money demand

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2020Policy Uncertainty and the Demand for Money in Japan 2019Economic policy uncertainty and demand for money in Australia 2011Modelling of narrow money demand in Australia: an ARDL cointegration approach, 1970–2009 2021Measuring the Money Demand in Pakistan: A Time Series Analysis

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