Financial Deregulation and Stability of Money Demand: The Australian Case

Hirokatsu Asano

Australian Economic Papers, 1999, vol. 38, issue 4, 407-421

Abstract: 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.

Date: 1999
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