Essays on the empirical modelling of money demand in periods of financial liberalisation : the case of Indonesia

This thesis contains three essays on the empirical modelling of money demand in periods of financial liberalisation. The empirical analysis uses a quarterly time-series dataset on Indonesian money, output, price, interest and exchange rates from 1983:1 to 2001:4. The first essay uses a univariate method to identify endogenous structural breaks in money and the determinants of money demand. The second essay extends this approach to the multivariate case to detect endogenous regime shifts in money demand. The third essay explicitly controls for financial liberalisation in the MDF.;We find evidence of a break occurring in the second quarter of 1991 and coinciding with a major government intervention in the money market known as the Sumarlin shock. We also find evidence of a break occurring in the last quarter of 1997 and coinciding with the severe economic crisis and a government intervention in the money market for which the Sumarlin shock of 1991 is the precedent. Finally, we show how modelling financial liberalisation as a deterministic drift process results in an improvement over the standard specifications in terms of yielding more constant and plausible values for the parameters of the MDF.