RDP 8502: Meeting on Monetary Issues
| Study | Data | Monetary Variable | Income Measure | Interest Rate | Elasticity of money with respect
to; Income Interest Rate |
Lags (Adjustment within initial year) |
Evidence of Stability | |
|---|---|---|---|---|---|---|---|---|
| Zerby (1969) | 1948-49–1964-65 annual | M3 | Personal disposable income | 2-year government bond yield | 0.82 | −0.70 | 45% | Not reported |
| Norton, Cohen and Sweeny (1970) |
1959(1)–1968(4) | (a) Currency | GDP | 12-month bank fixed deposit rate | 0.66 | −0.26 | 43% | Not reported |
| (b) Current deposits | GDP | 12-month bank fixed deposit rate | 0.73 | −0.44 | 58% | |||
| (c) Fixed deposits | GDP | 12-month bank fixed deposit rate | 1.60 | 0.33 | 68% | |||
| Schedvin (1971) | 1919-20–1937-38 annual | (a) M1 | Net domestic product | 10-years or more government bond yields | 0.60 | −0.03 | Full adjustment | Stable |
| (b) M2 | Net domestic product | 0.47 | −0.28 | Full adjustment | ||||
| (c) M3 | Net domestic product | 0.40 | −0.36 | Full adjustment | ||||
| Valentine (1973b) | 1962(4)–1969(4) | (a) Liquid assets (currency, current and savings deposits, loans to money market) | GDP | 12-month bank fixed deposit rate | 0.53 | −0.18 | Adjustment complete within year | Not reported |
| (b) Fixed deposits | Farm and non-farm GDP | 12-month bank fixed deposit rate | 0.95 | 0.38 | 83% | Not reported | ||
| Juttner and Tuckwell (1974) | 1952(1)–1972(3) | M3, deflated | Real GDP | (a) 2-year govt bond yield | 0.89 | −0.17 | 69% | Stable |
| (b) 10-year govt bond yield | 0.96 | −0.50 | 65% | |||||
| Lewis and Wallace (1974) | 1954–1971 annual | (a) Real savings deposits per capita | Real personal disposable income per capita | 10-year bond yield less savings deposit rate | 1.58 | −0.21 | Full adjustment | Evidence of instability |
| 1953–1971 annual | (b) Ratio of M1 to liquid assets | Real personal disposable income per capita | Weighted rate on fixed deposits, savings deposits, and building societies | n.a. | −0.49 | Full adjustment | ||
| Norman and Purvis (1975) | 1965(2)–1974(4) | (a) M1, deflated | Real GDP | 90-day bank endorsed conmercial bill rate | 1.01 | −0.36 | 77% | Post sample forecasts exhibit large prediction errors |
| (b) M3, | Real GDP | 90-day bank endorsed conmercial bill rate | 1.22 | −0.40 | 54% | |||
| Jonson, Moses and Wymer (1976) | 1959(3)–1974(4) | M3 deflated | Real GDP | Australian 10-year govt bonds; U.S. long-term bonds | 1.00* | −0.40 | Adjustment in other markets | Not reported |
| Adams and Porter (1976) | 1965(3)–1975(4) | M1 deflated | Real GDP | (a) 90-day commercial bill rate | 0.54 | −0.11 | Full adjustment by quarter assumed | Post sample forecasts exhibit large prediction errors |
| (b) 2-year govt bond yield | 0.57 | −0.17 | Full adjustment by quarter assumed | |||||
| Valentine (1977) | 1962(2)–1974(4) | M1 deflated | Real GDP | Call rate on loans to money market | 0.96 | −0.22 | 80% | Not reported |
| Sharpe and Volker (1977) | 1952(1)–1972(3) | M3 deflated | Real GDP | (a) 2-year govt bond yield | 0.92 | −0.23 | 67% | Post sample forecasts exhibit large prediction errors |
| (b) 10-year govt bond yield | 0.95 | −0.47 | 59% | |||||
| Lewis (1978) | (a) 1902(1)–1968(4) | Current (and total) deposits | Bank clearings | 10-year govt bond yield | 1.00* | 0.44# | Adjustment completed | No formal test. Results, however, are consistent with the view that interest rates are “more endogenous” than money supply |
| (b) 1946–1971 monthly | Current (and total) deposits | Bank debits | 10-year govt bond yield | 1.00* | 0.22# | Adjustment completed | ||
| (c) 1901–1971 yearly | M1 | GDP | 10-year govt bond yield | 1.00* | 0.34# | Adjustment completed | ||
| Valentine (1978) | 1966(4)–1976(3) | M3 deflated | Real Gross Operating Surplus | (a) Fixed deposit rate | 0.21 | 0.29 | Adjustment completed | Not reported |
| (b) Rate on call deposits with authorised dealers in STMM | −0.34 | |||||||
| Porter (1979) | 1966(3)–1979(2) | M1 deflated | Real GDP | 2-year Govt, bond yield | 0.91 | −0.49 | 88% | No formal test |
| M3 deflated | 1.00 | −0.33 | 94% | |||||
| Pagan and Volker (1981) | 1967(4)–1978(2) | M1 deflated | Real GDP | 90-day commercial bill rate | 0.73 | −0.46 | 73% | No statistical evidence of instabi1ity |
| Dixon and Lim (1984) | 1975(2)–1983(3) | M1 deflated | Real GDP | 90-day commercial bill rate | – | −0.97 | Adjustment completed | Not reported |
| Freeland (1984) | 1967(3)–1983(2) | M3 deflated | Real GDP | (a) 2-year govt bond yield | 0.75 | (a)−0.36 | Adjustment completed | No statistical evidence of instability |
| (b) rate on Savings Banks savings accounts | (b) 0.08 | |||||||
| (c) Fixed deposit | (c) 0.21 | |||||||
| Fahrer, Rankin and Tylor (1984) | 1959(3)–1980(4) | M3 deflated | Real GDP | (a) 10 year govt bond yield | 1.00* | (a) −0.39 | Adjustment in other markets | Not reported |
| (b) Fixed deposit rate | (b) 0.46 | |||||||
| (c) 90-day connercial bill rate | (c) −0.23 | |||||||
| Thurloe and Valentine (1984) | 1969(3)–1983(3) | M1 | GDP | Weighted average rate on deposits with STMM | 2.50 | −0.88 | 51% | No statistical evidence of instability arising from financial innovations |
| Drane, Marzouk and Valentine (1985) | 1958/59–1982/83 annual | (a) M1 deflated | Real GDP | 1 year finance company debenture rate | 12.80 | −2.22 | 10% | Stable |
| (b) M3 deflated | Real GDP | 1 year finance company debenture rate | 0.78 | −0.50 | 36% | |||
| (c) MM deflated | Real GDP | 1 year finance company debenture rate | 0.80 | −0.29 | 72% | |||
| (d) DCMM deflated | Real GDP | 2 year govt, bond rate | 1.42 | −0.12 | 43% | |||
|
*Coefficient constrained #As the dependent variable is the velocity of money, the coefficient is positive. Note: ‘Full adjustment’ means that equilibrium is assumed to be present with annual data; when lags are allowed for, but are a year or less, the phrase ‘adjustment completed’ is used. 1. Compiled in part from Davis, K. and Lewis, M. (1978), “Monetary Policy”, in F.H. Gruen (ed), “Surveys of Australian Economics”. George, Allen and Unwin. |
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