A Cointegration Approach to Monetary Targeting in Australia.

Cointegration analysis between real money (M3), output, interest rates and the effective exchange rate indicates the existence of a cointegrating vector which can be used to stabilize nominal GDP in the long run. An interesting aspect of the empirical investigation is the evidence that the long term interest rate adjusts to clear disequilibrium in money market. This suggests that carefully applied monetary targeting may still be a viable policy in Australia. Copyright 1993 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia