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Demand for Money and the Black Market Exchange Rate Expectations: Further Empirical Evidence

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  • Hamid Tabesh

    (University of Wisconsin-River Falls)

Abstract

This paper explores the impact of the black market exchange rate expectations on the demand for money in Iran. In the post-revolution era, Iran has imposed a great deal of restriction on the exchange market. The restrictions were so severe that in the period 1979-89, the nation basically was a closed economy. However, as the exchange market restrictions intensified, an active underground exchange market emerged in which key currencies in general and the U.S. dollar in particular, were exchanged several-fold higher than the official rate. The findings suggest that in the sample period 1959-94, demand for real cash balances has been significantly affected by the expected black market exchange rate. Further, the results of a cointegration test provide ample evidence that the expected appreciation/depreciation in the black market exchange rate, real income, and the rate of inflation jointly determine the demand for real M2-money in Iran.

Suggested Citation

  • Hamid Tabesh, 2000. "Demand for Money and the Black Market Exchange Rate Expectations: Further Empirical Evidence," Journal of Economic Insight, Missouri Valley Economic Association, vol. 26(2), pages 1-9.
    • Handle: RePEc:mve:journl:v:26:y:2000:i:2:p:1-9
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    Cited by:

    1. Sharifi-Renani, Hosein, 2007. "Demand for money in Iran: An ARDL approach," MPRA Paper 8224, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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