TAILIEUCHUNG - The Stability of Broad Money Demand (M3) in South

The paper examines the relationship of South African broad money (M3) and a set of variables such as income, opportunity cost of holding money (domestic and foreign interest rates), inflation, and stock market prices using a shopping-time technology model from [1] and [49]. The empirical evidence employs an ARDL model to test for a stable long-run relationship between M3 and its determinants. With cointegration established, we estimate an error-correction model that reveals how short-run dynamics adjust towards a long-run equilibrium. | Journal of Applied Finance Banking vol. 3 no. 6 2013 225-247 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2013 The Stability of Broad Money Demand M3 in South Africa Evidence from a Shopping-Time Technology and an ARDL Model Smile Dube1 Abstract The paper examines the relationship of South African broad money M3 and a set of variables such as income opportunity cost of holding money domestic and foreign interest rates inflation and stock market prices using a shopping-time technology model from 1 and 49 . The empirical evidence employs an ARDL model to test for a stable long-run relationship between M3 and its determinants. With cointegration established we estimate an error-correction model that reveals how short-run dynamics adjust towards a long-run equilibrium. There are four important results for broad money in South Africa. First there is cointegration between M3 and its determinants - income foreign interest rates inflation and real stock market prices. Second stock prices are an important determinant since cointegration fails if real stock prices are left out. Third contrary to some of the received literature the inclusion of an exchange rate in addition to stock prices causes most coefficients to be insignificant. More importantly demand for M3 becomes unstable. Finally a dummy variable that captures the introduction of inflation targeting introduced in 2000Q2 is insignificant. This irrelevance of inflation targeting in a money demand function remains whether we employ real stock prices or stock returns as one of the determinants of money demand. JEL classification numbers E41 E44 E4 M3 Keywords Cointegration ARDL shopping-time technology inflation targeting. 1 Introduction The paper examines the relationship of South African broad money M3 and determinants such as income opportunity cost of holding money domestic and foreign interest rates inflation and stock market prices with relationships based on a shopping- 1Department of Economics .

• Ngân hàng - Tín dụng
• Shopping time technology
• Inflation targeting
• ARDL model
• Broad money demand
• Variables such as income
• Socio economic
• Relationship between socio economic variables
• Production in agriculture
• Income in agriculture
• Multifactor analysis