ABSTRACT
This chapter investigates the long-run relationship between Divisia money and nominal income in ten Asian countries with respect to two important issues. First, is the question of whether measurement of money matters in the relationship between money and income. Secondly, how stable is the Divisia money-income relationship in an economy with a structurally changing financial system? Cointegration between Divisia money and income integrated at the biannual frequency is said to exist if there is at least one linear combination of the series that is stationary at that frequency. In the cases of Indonesia and Sri Lanka, Divisia money and income are cointegrated at the zero and biannual frequencies. W. Tseng and R. Corker pointed out that financial liberalisation leads to one time or more gradual shifts in the level of money holdings, as well as to changes in the measured income and interest elasticity of money demand.
