Stable Money Demand Function in Australia Leads to Economic Stability
The study investigates the stability of the broad money demand function in Australia from 1970 to 2008. Using statistical analysis, the researchers found a long-term relationship between real money balances, output, bond yields, and exchange rates. Only output and bond yields were consistently significant. The stability test showed instability in the early 1990s but increased stability afterward. These findings have implications for how monetary policy is designed and implemented.