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Title: |
Stability of Money Demand and Monetary Policy
in Papua New Guinea (PNG): An Error Correction Model Analysis |
| Author: |
Kannapiran,
Chinna A. |
| Author
Affiliation: |
Australia National U |
| Source: |
International Economic Journal, Autumn 2001, v. 15, no. 3, pp. 73-84 |
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Publication Date: |
Autumn 2001 |
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Abstract: |
An error correction model (ECM) is used to
study the properties of money demand and to evaluate the appropriate
monetary policy in PNG. The study confirms that the determinants of
money demand are real GDP, nominal interest and inflation rate. The
income elasticity of money demand is very low. The demand for money in
PNG was stable during 1979-95, suggesting that the monetary targeting
regime by the PNG Central Bank is feasible. However, as PNG proceeds
with economic reforms that includes financial sector reform and a
floating exchange rate regime, the stability of the demand for money may
have to be re-examined periodically. The best approach for conducting
the monetary policy in PNG is to target the inflation rate. |
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