Financial Liberalization, Weighted Monetary Aggregates and Money Demand in Indonesia

Puah , Chin-Hong and Hiew , Lee-Chea (2011) Financial Liberalization, Weighted Monetary Aggregates and Money Demand in Indonesia. [Working Paper]

[img]
Preview
PDF
Financial+Liberalization%2C+Weighted+Monetary+Aggregates+and+Money+Demand+in+Indonesia.pdf

Download (34kB) | Preview

Abstract

This study investigates the significance of Divisia monetary aggregates in formulating the monetary policy in Indonesia. A money demand function has been constructed to compare the relative performance for Simple-sum M1 and M2 (SSM1 and SSM2) and Divisia M1 and M2 (DM1 and DM2) monetary aggregates. The econometrics testing procedures that have been utilized in the estimation include unit root test, cointegration test, Vector Error Correction Model (VECM), Granger causality test and residual test. Empirical findings indicate that only DM1 model yields credible result amongst all of the money demand models. The obtained coefficients for DM1 model are consistent with a prior theoretical expectation and carry plausible magnitudes. The DM1 model is satisfactory as proven by the diagnostic tests. Divisia monetary aggregates are proven not only theoretical superior but also empirical valid as useful measurement of money for the case of Indonesia. The central bank of Indonesia may consider using Divisia monetary aggregates as the policy variables in formulating monetary policy

Item Type: Working Paper
Additional Information: Universiti Malaysia Sarawak, Unimas
Uncontrolled Keywords: UNIMAS, 2011, Money Demand, Divisia, Money, VECM
Subjects: A General Works > AC Collections. Series. Collected works
A General Works > AC Collections. Series. Collected works

H Social Sciences > HG Finance
Divisions: Academic Faculties, Institutes and Centres > Faculty of Economics and Business
Depositing User: Karen Kornalius
Date Deposited: 09 Jun 2014 04:21
Last Modified: 25 Aug 2020 08:13
URI: http://ir.unimas.my/id/eprint/3101

Actions (For repository members only: login required)

View Item View Item