Sources of Growth of the Australian Money Supply

Abstract

Variation in the Australian money supply is analyzed in two frameworks: (1) the “formations table” framework; and (2) a framework obtained by modifying traditional monetary decomposition to accommodate the ability of Australian banks to change their LGS assets by transacting with the central bank at a policy-determined interest rate. Evidence is presented on the determinants of the Australian money supply over the period 1960-75. Variation in the augmented monetary base (monetary base plus trading banks' holdings of government securities) is found to be a major source of variation in the money supply.