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The Stability of M3 Money Demand and Monetary Growth Targets: The Case of South Africa

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  • Kevin Nell

Abstract

The main purpose of this article is to determine whether money should continue to play an important role in the formulation of monetary policy in South Africa, even though the monetary policy framework has recently changed to an inflation targeting strategy. Money can continue to play an important role in the formulation of an efficient monetary policy strategy as long as there is a stable money demand function and money contains useful information about future price changes. The paper presents empirical evidence of a constant and structurally stable M3 money demand function for South Africa over the period 1968-97. The analysis further shows that the non-constancies experienced during 1998-99 may only be temporary. Despite evidence of a stable M3 money demand function, the results indicate that M3 money provides little information about future price changes in South Africa and may therefore have lost its usefulness as a reliable indicator for monetary policy. The money stock is endogenous, with prices determining money through the stable M3 money demand function.

Suggested Citation

  • Kevin Nell, 2003. "The Stability of M3 Money Demand and Monetary Growth Targets: The Case of South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 39(3), pages 155-180.
    • Handle: RePEc:taf:jdevst:v:39:y:2003:i:3:p:155-180
    DOI: 10.1080/00220380412331322861
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    Citations

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    Cited by:

    1. Khalfaoui, Rabeh & Padhan, Hemachandra & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2020. "Understanding the time-frequency dynamics of money demand, oil prices and macroeconomic variables: The case of India," Resources Policy, Elsevier, vol. 68(C).
    2. Kumar, Saten & Webber, Don J. & Fargher, Scott, 2013. "Money demand stability: A case study of Nigeria," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 978-991.
    3. Manamba EPAPHRA, 2017. "An Econometric Analysis of Demand for Money and its Stability in Tanzania," Turkish Economic Review, KSP Journals, vol. 4(2), pages 167-192, June.
    4. Bassey Nsikan Edet & Solomon Ubong Udo & Okon Ubokudom Etim, 2017. "Modelling the Demand for Money Function in Nigeria: Is There Stability?," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 6(1), pages 45-57, March.
    5. Riané de Bruyn & Rangan Gupta & Lardo Stander, 2013. "Testing the Monetary Model for Exchange Rate Determination in South Africa: Evidence from 101 Years of Data," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(1), March.
    6. Miguel Lebre de Freitas, 2023. "Forecasting inflation with excess liquidity and excess depreciation: the case of Angola," Economic Change and Restructuring, Springer, vol. 56(1), pages 473-514, February.
    7. doğru, bülent, 2013. "Dynamic Analysis of Money Demand Function: Case of Turkey," MPRA Paper 48402, University Library of Munich, Germany.
    8. Atif Ali Jaffri, 2010. "Exchange Rate Pass-through to Consumer Prices in Pakistan: Does Misalignment Matter?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(1), pages 19-35.
    9. Ferda HALICIOGLU & Mehmet UGUR, 2005. "On Stability of the Demand for Money in a Developing OECD," Macroeconomics 0508001, University Library of Munich, Germany.
    10. Mr. Arto Kovanen & Jihad Dagher, 2011. "On the Stability of Money Demand in Ghana: A Bounds Testing Approach," IMF Working Papers 2011/273, International Monetary Fund.
    11. Ozturk, Ilhan & Acaravci, Ali, 2008. "The Demand for Money in Transition Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 35-43, June.
    12. Stephen G. Hall & George Hondroyiannis & P.A.V.B. Swamy & George S. Tavlas, 2009. "Where Has All the Money Gone? Wealth and the Demand for Money in South Africa †," Journal of African Economies, Centre for the Study of African Economies, vol. 18(1), pages 84-112, January.
    13. Sambulo Malumisa, 2015. "Structural Breaks, Stability and Demand for Money in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 7(5), pages 79-90.
    14. Mr. Arto Kovanen, 2011. "Does Money Matter for Inflation in Ghana?," IMF Working Papers 2011/274, International Monetary Fund.

    More about this item

    Keywords

    demand for M3 money; monetary growth targets; super exogenous; inflation;
    All these keywords.

    JEL classification:

    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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