The demand for money in New Zealand in an era of institutional change: Evidence from the 1981–1994 period

Abstract

This paper considers the determinants of short‐run and long‐run money demand in New Zealand. A sample consisting of quarterly data covering the 1981–1994 period is considered. Resort to this particular sample raises several modelling issues given that it includes an era of rapid financial change and economic volatility. The well‐known techniques of cointegration and error correction are employed to generate the relevant statistical estimates. In addition to testing MI, M3 and the demand for domestic credit, a new composite aggregate is also generated. Briefly, the results strongly suggest that only a demand for money function that specifically accounts for institutional change yields an econometrically satisfactory equilibrium and error‐correction relationship.

Notes

Department of Economics, Wilfrid Laurier University, Canada