Demand for money, financial reforms and monetary policy in Fiji : an econometric analysis

Abstract

The paper seeks to undertake an econometric investigation of a quarterly money demand model for an eighteen year period 1979Q1-1996Q4. The variables considered for the model are real income, real interest rate, the real effective exchange rate and the expected rate of inflation, which are likely determinants of money demand in Fiji. Both versions of the Chow test, and the CUSUM and CUSUMSQ tests for stability are used to test the stability of demand for M2 money between the 1975-1987 pre-reform period and the 1988-1996 period, which marks the years of financial reforms. The tests do not provide strong evidence that these reforms have affected the stability of the money demand function.