An evolutionary macroeconomic model of Australian dollar M3 determination: 1967–93

An evolutionary macroeconomic approach, stressing institutional behaviour, is used to estimate a model of Australian dollar M3. It is estimated in first differences by both ordinary and two-stage least squares. A very stable endogenous money-supply model is discovered. A novel aspect is the inclusion of a real property value variable, which plays a key role. A small, but very stable, interest elasticity is recorded. It is concluded that financial deregulation does not prevent us from discovering a stable Australian M3 equation, as is often suggested. Conclusions are drawn with respect to the conduct of monetary policy.