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Financial Deregulation and Stability of Money Demand: The Australian Case
Author(s) -
Asano Hirokatsu
Publication year - 1999
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00065
Subject(s) - economics , demand curve , interest rate , deregulation , demand for money , demand deposit , monetary economics , error correction model , endogenous money , broad money , income elasticity of demand , macroeconomics , cointegration , econometrics , monetary policy , microeconomics
This paper analyses the Australian economy in the post‐war period. The analysis examines stationarity and cointegrating relationship among output, interest rate and money. The analysis shows that Australia has had a stable cointegrating relationship among output, interest rate and money during the post‐war period although the country deregulated its financial sector in the 1980's. Australia's money demand function fails to reject the hypothesis that the interest elasticity of money demand is 0.5. In addition, one specification of the country's money demand function fails to reject the hypothesis that the income elasticity of money demand is unity. The specification is the Vector Error Correction Model that includes real output, real balances, an interest rate, and a deregulation dummy variable, with the lag length of three.