Long‐ and short‐run determinants of the demand for money in New Zealand: A cointegration analysis

The existence of a stable demand for money is very important for the conduct of monetary policy even in this new era of inflation targeting. This paper examines the long‐run determinants of the demand for M3 in New Zealand employing the Johansen cointegration technique and quarterly data for the period 1988: 1–2002: 2‐ The paper finds, inter alia, that the demand for money is cointegrated with real income, the spread between interest on money and on non‐money assets, the expected rate of inflation, and the real effective, (trade weighted index) exchange rate.