Long-run and short-run money demand: which price deflator to use? Some evidence using New Zealand data

When institutional and financial changes are great, findings about the influence of income and opportunity cost variables on money demand, and the stability of any such relationship, may be influenced by how prices are measured. This paper considers the case of New Zealand, which has experienced several large regime shifts in the space of a decade. Using the cointegration/error correction framework, it is found that consumer prices excluding interest costs provide the most meaningful measure of money demand.