Structural breaks, demand for money and monetary policy in Fiji

Abstract

This article fills a gap in the empirical work on the demand for money in Fiji. We allowed for structural breaks in the cointegrating equation, within the Gregory and Hansen framework, and found that there is a cointegrating relationship between real narrow money, real income and the nominal rate of interest in three types of structural break models. However, only the model with an intercept shift for the 1987 political coup yields a meaningful cointegrating relationship. Allowing for this break, we found that the demand for money in Fiji is stable. Using our estimates the successes and failures of monetary policy are analysed.