Modelling the demand for money in New Zealand. (English) Zbl 1117.91397
Summary: 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, 99 (1990)] 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.
MSC:
| 91B42 | Consumer behavior, demand theory |
References:
| [1] | Alogoskoufis, G.; Smith, R. P.: On error correction models: specification, interpretation and estimation. J. econ. Surveys 5, 97-127 (1991) |
| [2] | Boughton, J. M.: Recent instability of the demand for money: an international perspective. South. econ. J. 47, No. 3, 579-597 (1981) |
| [3] | Den Butter, F. A. G; Fase, M. M. G: The demand for money in EEC countries. J. monetary econ. 8, 201-230 (1981) |
| [4] | Doornik, J. A.; Hendry, D. F.; Nielsen, B.: Inference in cointegrating models: UK M1 revisited. J. econ. Surveys 12, 533-572 (1998) |
| [5] | Engle, R. F.; Granger, C. W. J: Co-integration and error correction: representation, estimation and forecasting. Econometrica 55, 251-276 (1987) · Zbl 0613.62140 |
| [6] | Goldfeld, S. M.: The case of the missing money. Brookings papers econ. Activity 3, 577-638 (1976) |
| [7] | A. Grimes, Monetary policy, in: B. Silverstone, A. Bollard, R. Lattimore (Eds.), A Study of Economic Reform: The Case of New Zealand, Elsevier, Amsterdam, 1996 (Chapter 8). |
| [8] | Hacche, G.: The demand for money in the united kingdom: experience Since 1971. Bank england Q. Bull. 14, 284-305 (1974) |
| [9] | Hamburger, M. J.: The demand for money in an open economy. J. monetary econ. 3, 25-40 (1977) |
| [10] | Hendry, D. F.; Ericsson, N.: Modelling the demand for narrow money in the united kingdom and the united states. Eur. econ. Rev. 35, 833-886 (1991) |
| [11] | Johansen, S.: Statistical analysis of cointegration vectors. J. econ. Dynamics control 12, 231-254 (1988) · Zbl 0647.62102 |
| [12] | Laidler, D. E. W; Parkin, M.: The demand for money in the united kingdom 1956–1967: some preliminary estimates. Manchester school 38, 187-208 (1970) |
| [13] | Mcaleer, M. J.: Sherlock holmes and the search for truth: a diagnostic tale. J. econ. Surveys 8, 317-370 (1994) |
| [14] | Muscatelli, A.; Hurn, S.: Econometric modeling of cointegrated time series. J. econ. Surveys 6, 1-43 (1992) |
| [15] | Oxley, L. T.: Functional and structural breaks in the UK demand for money function: 1963–1979. J. econ. Studies 10, 22-41 (1983) |
| [16] | Oxley, L. T.: Box–Cox power transformations and the demand for money functions in France, Germany, Italy and The Netherlands. J. appl. Stat. 13, 67-75 (1986) |
| [17] | Pesaran, M. H.; Smith, R. P.: Structural analysis of cointegrating vars. J. econ. Surveys 12, 471-506 (1998) |
| [18] | Phillips, P. C. B; Hansen, B. E.: Statistical inference in instrumental variables regression with \(I(1)\) processes. Rev. econ. Stud. 57, 99-125 (1990) · Zbl 0703.62098 |
| [19] | Monetary policy implementation: changes to operating procedures, Reserve Bank of New Zealand, Bulletin 62 (1) (1999) 46–50. |
| [20] | J.D. Sargan, Wages and prices in the United Kingdom: a study in econometric methodology, in: Proceedings of the Sixteenth Symposium of the Colston Research Society, vol. 16, Butterworths, London, 1964. |
| [21] | Sims, C. A.: Macroeconomics and reality. Econometrica 48, 1-48 (1980) |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
