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Demand for money in Iran: An ARDL approach

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  • Shahrestani, Hamid
  • Sharifi-Renani, Hosein

Abstract

The objective of this study is to estimate the demand for money in Iran using the autoregressive distributed lag (ARDL) approach to cointegration analysis. The empirical results show that there is a unique cointegrated and stable long-run relationship among M1 monetary aggregate, income, inflation and exchange rate. We find that the income elasticity and exchange rate coefficient are positive while the inflation elasticity is negative. This indicates that depreciation of domestic currency increases the demand for money, supporting the wealth effect argument and people prefer to substitute physical assets for money balances that are supporting our theoretical expectation. Our results also after incorporating the CUSUM and CUSUMSQ tests reveal that the M1 money demand function is stable between 1985 and 2006.

Suggested Citation

  • Shahrestani, Hamid & Sharifi-Renani, Hosein, 2007. "Demand for money in Iran: An ARDL approach," MPRA Paper 11451, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11451
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    Cited by:

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    2. Jordan KJOSEVSKI & Mihail PETKOVSKI, 2017. "Are The Determinants Of Money Demand Stable In Selected Countries From Southeastern Europe?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 84-96, December.
    3. Odunayo Magret Olarewaju & Mabutho Sibanda & Stephen Oseko Migiro, 2017. "Dynamics of Lintner’s Model in the Dividend Payment Process of Nigerian Banks," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 67(3), pages 79-94, july-Sept.
    4. Yannick Roussel & Amjad Ali & Marc Audi, 2021. "Measuring The Money Demand In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 27-41, March.
    5. Masudul Hasan Adil & Salman Haider & Neeraj R. Hatekar, 2020. "Empirical Assessment of Money Demand Stability Under India’s Open Economy: Non-linear ARDL Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 891-909, December.
    6. Yaşar Turna, 2021. "Development of Import-Based Exports in Turkey: The ARDL Approach," Istanbul Business Research, Istanbul University Business School, vol. 50(1), pages 1-14, May.
    7. Ali, Issa, 2017. "Estimating the demand for money in Libya: An application of the Lagrange multiplier structural break unit root test and the ARDL cointegration approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 46, pages 126-138.
    8. Abdullah, Muhammad & Chani, Muhammad Irfan & Ali, Amjad, 2012. "Determinants of Money Demand in Pakistan: Disaggregated Expenditure Approach," MPRA Paper 50977, University Library of Munich, Germany, revised 2013.

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    More about this item

    Keywords

    Money demand; ARDL; Stability; Iran;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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