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Some new evidence on the determinants of money demand in developing countries – A case study of Tunisia

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  • Ben Salha, Ousama
  • Jaidi, Zied

Abstract

The present paper aims at examining the money demand function in Tunisia during the period 1981-2011. Unlike previous conventional money demand studies, the major components of real income are considered in this paper. Using the ARDL bounds testing approach, results reveal evidence of cointegration between broad money demand and its determinants, namely final consumption expenditure, expenditure on investment goods, export expenditure and interest rate. In the long-run, final consumption expenditure represents the major money demand determinant. This finding is robust to a variety of alternative money demand specifications and estimation methods. The empirical investigation suggests also the stability of the broad money demand function during the sample period. We conclude that monetary policy in Tunisia should be based on a broad definition of money. Furthermore, the estimation of the money demand function must take into account the different expenditure components of real income.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51788.

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Date of creation: 01 Nov 2013
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Handle: RePEc:pra:mprapa:51788

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Keywords: Money demand; M2; expenditure components; ARDL; Tunisia.;

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