ECONOMIC UNCERTAINTY, MONETARY UNCERTAINTY AND THE DEMAND FOR MONEY IN AUSTRALIA

The demand for money and its stability in Australia has received a great deal of attention in the past and has resulted in its own literature. Depending upon estimation method and period of analysis, previous research has provided mixed findings. By including a measure of economic uncertainty and a measure of monetary uncertainty (both GARCH-based) in the long-run money demand for M3, and by using the bounds testing approach under which variables could be stationary or non-stationary, we provide strong evidence that the M3 money demand in Australia is stable. Both uncertainty measures do have short-run as well as long-run effects on the demand for M3 in Australia, factors that previous research did not consider.