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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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    References listed on IDEAS

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    Cited by:

    1. Nikolaos Dritsakis, 2011. "Demand for Money in Hungary: An ARDL Approach," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 01-16, November.
    2. repec:rjr:romjef:v::y:2017:i:4:p:84-96 is not listed on IDEAS
    3. repec:spd:journl:v:67:y:2017:i:3:p:79-94 is not listed on IDEAS
    4. repec:ris:apltrx:0321 is not listed on IDEAS
    5. 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.

    More about this item

    Keywords

    Money demand; ARDL; Stability; Iran;

    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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