Long-run stability of money demand and monetary policy: the case of Algeria

Raouf Boucekkine (), Mohammed Laksaci () and Mohamed Touati-Tliba
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Mohammed Laksaci: Ecole Supérieure de Banque
Mohamed Touati-Tliba: ESC Alger - ESC Alger - ESC ALGER - ESC Alger

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Abstract: We estimate the demand for money for monetary aggregates M1 and M2, and cash in Algeria over the period 1979-2019, and study its long-run stability. We show that the transaction motive is significant for all three aggregates, especially for the demand for cash, reflecting the weight of informal economy "practices". The elasticity of the scale variable is very close to unity for M2 and M1, and even equal to unity for cash demand (1.006). The elasticity of inflation is also significant for all three aggregates, although its level is higher in the case of cash demand (-6.474). Despite the persistence of certain financial repression mechanisms, interest rate elasticity is significant for all three aggregates, but higher for M1 and cash. The same observation is made for elasticity of the exchange rate, reflecting the effect of monetary substitution, especially for M1 and cash. Finally, our study concludes that the demand for money in terms of M1 remains stable, the same observation being confirmed for the M2 aggregate. However, the demand for fiat currency proves not to be stable. The consequences for the optimal design of monetary policy in Algeria are clearly stated.

Keywords: monetary policy; money demand; long-run stability; resource-rich countries; Algeria; co-integration (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-ara, nep-his, nep-isf, nep-iue, nep-mac and nep-mon
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Related works:
Journal Article: Long-run stability of money demand and monetary policy: The case of Algeria (2021)
Working Paper: Long-run stability of money demand and monetary policy: the case of Algeria (2021)
Working Paper: Long-run stability of money demand and monetary policy: the case of Algeria (2021)
Working Paper: Long-run stability of money demand and monetary policy: The case of Algeria (2021)
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