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Nonlinear ARDL Approach and the Demand for Money in Iran

Author

Listed:
  • Mohsen Bahmani-Oskooee

    (The University of Wisconsin-Milwaukee)

  • Sahar Bahmani

    (The University of Wisconsin- Parkside)

Abstract

To account for currency substitution, most studies today include exchange rate as a determinant of the demand for money, in addition to income and interest rate. This tradition goes back to Robert Mundell who introduced this notion in 1963. In this paper, we demonstrate that the failure to find a significant relationship between exchange rate and the demand for money could be due to assuming a linear adjustment mechanism among the variables. Once we introduce nonlinearity in the short run as well as in the long run through partial sum concept, we show that currency appreciation or depreciation could affect the demand for money in an asymmetric manner. This is demonstrated using data from Iran.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Sahar Bahmani, 2015. "Nonlinear ARDL Approach and the Demand for Money in Iran," Economics Bulletin, AccessEcon, vol. 35(1), pages 381-391.
    • Handle: RePEc:ebl:ecbull:eb-14-00492
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    References listed on IDEAS

    as
    1. Bahmani-Oskooee, Mohsen, 1996. "The black market exchange rate and demand for money in Iran," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 171-176.
    2. Ferda Halicioglu, 2007. "The J‐curve dynamics of Turkish bilateral trade: a cointegration approach," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 34(2), pages 103-119, May.
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    5. Mohsen Bahmani-Oskooee, 2005. "History of the Rial and Foreign Exchange Policy in Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 10(2), pages 1-20, fall.
    6. Mohsen Bahmani‐Oskooee & Scott W. Hegerty, 2007. "Exchange rate volatility and trade flows: a review article," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 34(3), pages 211-255, August.
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    8. Hock Tsen Wong, 2013. "Real exchange rate misalignment and economic growth in Malaysia," Journal of Economic Studies, Emerald Group Publishing, vol. 40(3), pages 298-313, May.
    9. Bahmani-Oskooee, Mohsen & Tankui, Altin, 2008. "The black market exchange rate vs. the official rate in testing PPP: Which rate fosters the adjustment process?," Economics Letters, Elsevier, vol. 99(1), pages 40-43, April.
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    13. Abdur Chowdhury, 1997. "The financial structure and the demand for money in Thailand," Applied Economics, Taylor & Francis Journals, vol. 29(3), pages 401-409.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Money Demand; Exchange Rate; Asymmetry; Nonlinear ARDL;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E0 - Macroeconomics and Monetary Economics - - General

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