Money Demand Stability in Indonesia
Penulis/Peneliti : Lestano (Unika Atma Jaya), Jan P.A.M. Jacobs (CAMA - The Centre for Applied Macroeconomic Analysis, The Australian National University and CIRANO, Montreal), and Gerard H. Kuper (University of Groningen and the Euro Area Business Cycle Network)


Bidang Penelitian : Money demand, exchange rates, foreign interest rates, autoregressive distributed lag model, cointegration, stability, financial liberalization, Asian financial crisis, Indonesia


Jurnal : Research Report


Volume : -


Tahun : 2012

This paper investigates broad and narrow money demand equations for Indonesia. In this period many financial liberalizations took place, and it includes the financial crisis in 1997 and 1998. The money demand equations include open economy variables to allow for currency substitution and the wealth effect of changes in the exchange rate. We employ the autoregressive distributed lag (ARDL) approach to cointegration introduced by Pesaran and Shin (1999) and Pesaran, Shin, and Smith (1996, 2001). The main advantage of this approach lies in the fact it can be applied irrespective of whether the order of integration of the regressors is I(0) or I(1). We find that broad and narrow money demand equations are cointegrated. CUSUM and CUSUMSQ tests reveal that the narrow money demand equation is stable, whereas the broad money demand equation is not.

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