Demand for money in Iran: An ARDL approach
AbstractThe 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8224.
Date of creation: 10 Oct 2007
Date of revision:
Money demand; ARDL; Stability; Iran;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-21 (All new papers)
- NEP-CBA-2008-04-21 (Central Banking)
- NEP-MAC-2008-04-21 (Macroeconomics)
- NEP-MON-2008-04-21 (Monetary Economics)
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