The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function

Hiew, Lee-Chea and Puah, Chin-Hong and Habibullah, Muzafar Shah (2013): The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function. Forthcoming in: The Journal of American Academy of Business, Cambridge

Abstract

Using the consumer theory approach as suggested by Habibullah (2009), this study aims to shed new light on monetary authority by incorporating advertising expenditure, a variable that has been neglected in the past, into study of the money demand function in Indonesia. In addition, different measurements of monetary aggregates (simple-sum and Divisia money) have been used in the estimation to provide better insight into the selection of a suitable monetary policy variable for the case of Indonesia. Empirical findings from the error-correction model (ECM) indicate that the advertising expenditure variable has a significant impact on the demand for money. Furthermore, as compared to simple-sum money, the model that used Divisia monetary aggregates rendered more plausible estimation results in the estimation of money demand function.

• Item Type: MPRA Paper
• Language: English
• Keywords: Advertising Expenditure, Divisia Money, Money Demand
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M37 - Advertising

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