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Australasian money demand stability: application of structural break tests

Saten Kumar and Don Webber ()

Applied Economics, 2013, vol. 45, issue 8, 1011-1025

Abstract: Estimates of the demand for money provide important foundations for monetary policy setting but if the estimation technique does not explicitly account for structural changes then such estimates will be biased. This article presents an investigation into the level and stability of money demand ( M1 ) for Australia and New Zealand over the period 1960--2009 and demonstrates that both countries experienced regime shifts; Australia also experienced an intercept shift. Application of four time series methods provide consistent results with 1984 and 1998 break dates. Cumulative Sum (CUSUM) and CUSUMSQ stability tests reveal that M1 demand functions were unstable over the period 1984--1998 for both countries although tests for stability are not rejected thereafter.

Date: 2013
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DOI: 10.1080/00036846.2011.613788

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