Economic policy uncertainty and demand for money in Australia

Ivanovski, K and Awaworyi Churchill, S 2019, 'Economic policy uncertainty and demand for money in Australia', Applied Economics, pp. 1-11.

Document type: Journal Article
Collection: Journal Articles

Title Economic policy uncertainty and demand for money in Australia
Author(s) Ivanovski, K
Awaworyi Churchill, S
Year 2019
Journal name Applied Economics
Start page 1
End page 11
Total pages 11
Publisher Routledge
Abstract The demand for money has received a great deal of attention in the empirical literature. This literature, however, has emphasized factors such as interest rate, income, inflation rate and exchange rate as the primary determinants of money demand. Although an emerging strand of literature examines uncertainty as a potential determinant of money demand, findings have been mixed. Using a news-based Economic Policy Uncertainty (EPU) index and Australian quarterly data from 1998 to 2017, we study the impact of policy uncertainty on demand for money. Autoregressive distributed lag (ARDL) results show that the economic policy uncertainty measure has a negative short-run effect on the demand for money, suggesting the wider public hedge against future expected inflation, and positive long-run effect, whereby the broader public hold more cash to stay liquid during times of economic uncertainty. Also, introducing nonlinearity into the money demand equation, we find an asymmetric effect, more in favour of currency appreciations, supporting the expectations effect of further appreciations in exchange rate movements.
Subject Applied Economics not elsewhere classified
Macroeconomics (incl. Monetary and Fiscal Theory)
Keyword(s) Money demand
policy uncertainty
demand for money
DOI - identifier 10.1080/00036846.2019.1593936
Copyright notice © 2019 Informa UK Limited, trading as Taylor & Francis Group
ISSN 0003-6846
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