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| Title: | Where has all the money gone? Wealth and the demand for money in South Africa |
| Author: | Hall, Stephen G. |
| Year: | 2009 |
| Periodical: | Journal of African Economies |
| Volume: | 18 |
| Issue: | 1 |
| Pages: | 84-112 |
| Language: | English |
| Geographic term: | South Africa |
| Subjects: | money demand wealth |
| External link: | https://jae.oxfordjournals.org/content/18/1/84.full.pdf |
| Abstract: | After an upward trend for about 25 years, the income velocity of money in South Africa reversed its course in 1994 and began a steep decline that continues to the present day. Some writers have argued that the change in income velocity is symptomatic of an unstable demand for money. The implication of this argument being that movements in the money supply provide little useful information about medium-to-long-term inflationary developments. The present authors argue otherwise. Their basic premise is that there is a stable demand-for-money function but that the models that have been used to estimate South African money demand are not well specified because they do not include a measure of wealth. Using two empirical methodologies - a co-integrated vector equilibrium correction approach and a time-varying coefficient approach - they find that a demand-for-money function that includes wealth is stable. Consequently, their results suggest that the present practice of the South African Reserve Bank whereby M3 (the monetary aggregate targeted by the South African Reserve Bank from 1985-1999 and its determinants) is used as an information variable in the Bank's inflation-targeting framework is well placed. Bibliogr., notes, ref., sum. [Journal abstract] |
