Demand for money in Iran: An ARDL approach

Hamid Shahrestani and Hosein Sharifi-Renani ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Money demand; ARDL; Stability; Iran (search for similar items in EconPapers)
JEL-codes: E4 E41 E44 (search for similar items in EconPapers)
Date: 2007-10-10
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Working Paper: Demand for money in Iran: An ARDL approach (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11451

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