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In Search Of A Stable Narrow Money-Demand Function For Indonesia, 1970–2007

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  • AKHAND AKHTAR HOSSAIN

    (Newcastle Business School, University of Newcastle, NSW 2308, Australia)

Abstract

This paper adopts the Johansen approach to cointegration to estimate a narrow money-demand function for Indonesia with annual data for the period 1970–2007. Empirical results suggest that there exists a cointegral relationship between real narrow balances, real permanent income and the deposit rate of interest. The recursive and rolling regression results suggest that the narrow money-demand function has remained largely stable irrespective of ongoing financial reforms in Indonesia since the late 1980s and/or financial crises in the late 1990s. The Quandt-Andrews breakpoint and the Hansen-Johansen stability tests results however suggest that the narrow money-demand relationship had a structural break in the early 1990s. This corresponds to a period of time when the banking and financial reforms in Indonesia took effect. The Chow breakpoint test results suggest that there was also a structural break in the money-demand relationship during the financial crises of the late 1990s.

Suggested Citation

  • Akhand Akhtar Hossain, 2011. "In Search Of A Stable Narrow Money-Demand Function For Indonesia, 1970–2007," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(01), pages 61-77.
    • Handle: RePEc:wsi:serxxx:v:56:y:2011:i:01:n:s0217590811004109
    DOI: 10.1142/S0217590811004109
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
    2. International Monetary Fund, 2002. "Indonesia: Selected Issues," IMF Staff Country Reports 2002/154, International Monetary Fund.
    3. Santomero, Anthony M. & Siegel, Jeremy J., 1986. "Deposit deregulation and monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 179-224, January.
    4. Mr. Robert J. Corker & Ms. Wanda S Tseng, 1991. "Financial Liberalization, Money Demand, and Monetary Policy in Asian Countries," IMF Occasional Papers 1991/002, International Monetary Fund.
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    Cited by:

    1. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    2. Muhammad Umar Draz, 2011. "Impact Of Financial Crises On Pakistan And China: A Comparative Study Of Six Decades," Journal of Global Business and Economics, Global Research Agency, vol. 3(1), pages 174-186, July.
    3. Dejan Živkov & Slavica Manić & Ivan Pavkov, 2022. "Nonlinear examination of the ‘Heat Wave’ and ‘Meteor Shower’ effects between spot and futures markets of the precious metals," Empirical Economics, Springer, vol. 63(2), pages 1109-1134, August.

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