Modelling the demand for money in New Zealand

Daniel Choi and Les Oxley

Mathematics and Computers in Simulation (MATCOM), 2004, vol. 64, issue 1, 185-191

Abstract: The paper reports on the results of estimating both the long- and short-run demand for money function in New Zealand, 1990–2000 using quarterly data and cointegration- and error-correction-based models. It is found that price, real income and interest rate variables are integrated of order 1 or I(1). Using Phillips and Hansen [Rev. Econ. Stud. 57 (1990) 99] fully modified estimation methods, we establish the existence of a long-run cointegrating relationship among these three variables. Using the residuals from this model to represent the error-correction mechanism (ECM) term, we identify a short-run model utilising Hendry’s general-to-specific (GTS) approach. The model is shown to satisfy the typical diagnostic requirements of a multiple regression model. Three event dummies are used to capture key events of relevance to monetary policy in New Zealand.

Keywords: Demand for money; New Zealand; Cointegration; ECM (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:64:y:2004:i:1:p:185-191

DOI: 10.1016/S0378-4754(03)00131-9

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