Abstract
Based on data for the 1974–95 period this paper estimates demand for narrow money and broad money in Brunei using the error‐correction specification. Short‐run and long‐run elasticities are estimated with respect to real income, interest rate, expected price level and liquidity. Narrow money is quite responsive to changes in real income and interest rate in both the short and long terms. Broad money is income inelastic regardless of the time horizon, however, it is interest inelastic in the short run but interest elastic in the long run. Price elasticity of money demand is negligible in the short run but quite significant in the long run. Changes in the proportion of commercial bank assets placed in foreign money markets do not seem to affect demand for narrow money but their effect on the demand for broad money is both direct and significant.
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