DEMAND FOR MONEY AND EXPENDITURE COMPONENTS IN SOUTH AFRICA: ASSESSMENT FROM UNRESTRICTED ERROR-CORRECTION MODELS

The main aim of this study is to examine empirically the long‐run relationship of money demand and its determinants in South Africa. In contrast with existing studies on the subject, the present study considers various components of real income as determinants. The disaggregated components are final consumption expenditure, expenditure on investment goods and exports. The other determinants are domestic interest rate, yield on government bonds and the exchange rate. The results confirm that the different components of real income have different impacts on the demand for money in South Africa. The presence of long‐run equilibrium relationships between the demand for real M1, M2 and M3 and their determinants is confirmed based on the results of bounds testing.