Premium
LONG‐RUN M3 DEMAND IN SOUTH AFRICA: A COINTEGRATED VAR MODEL
Author(s) -
Todani K.r.
Publication year - 2007
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2007.00150.x
Subject(s) - cointegration , economics , inflation (cosmology) , vector autoregression , broad money , econometrics , demand curve , error correction model , sample (material) , demand for money , short run , monetary economics , monetary policy , microeconomics , chemistry , physics , chromatography , theoretical physics
This paper presents a system cointegration analysis of a long‐run demand for money (measured in terms of M3) in South Africa. In particular, the paper estimates a cointegrated vector autoregression model, consisting of real money, income and the opportunity cost of holding money. Using a variety of theory consistent identification schemes, the money demand function is identified along with other two cointegrating relations, namely, an IS‐type relationship and a relationship relating inflation to the spread between long‐ and short‐term interest rates. The model shows that of the variables used, only income and real money are error‐correcting to the money demand relation. The money demand relation is found to be relatively stable over the sample period, when short‐run fluctuations are corrected for. The model further shows that the long‐run link between money and inflation is rather weak.