Testing the Stability of Demand for Money in Tonga

Saten Kumar and Billy Manoka

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this study is to investigate if there is a stable demand for money for Tonga. Our empirical results based on the alternative time series approaches of LSE-Hendry's General to Specific (GETS) and Johansen's Maximum Likelihood (JML) show that there is a unique cointegrated and stable long run relationship between real narrow money, real income and nominal rate of interest. We found that the demand for money function for Tonga is stable and therefore targeting money supply by National Reserve Bank of Tonga is appropriate. We obtained consistent results with both methods and they indicate that income elasticity is unity and the interest rate elasticity is well- determined and significant.

Keywords: Demand for Money; Stability of Money Demand Function; General to Specific Approach; Johansen Maximum Likelihood Method (search for similar items in EconPapers)
JEL-codes: C22 E41 (search for similar items in EconPapers)
Date: 2008-06-12
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Citations: View citations in EconPapers (5)

Published in The Empirical Economics Letters 7.8(2008): pp. 835-843

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:19300

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