Shahrestani, Hamid and Sharifi-Renani, Hosein (2007): Demand for money in Iran: An ARDL approach. Published in: Tehran's Journal of Tahghighate Eghtesadi , Vol. 83,
Download (185kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Demand for money in Iran: An ARDL approach|
|Keywords:||Money demand; ARDL; Stability; Iran|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
|Date Deposited:||16. Nov 2008 10:23|
|Last Modified:||13. Feb 2013 01:04|
Adam, C. S. Financial innovation and the demand for M3 in the U.K. 1975-86. Oxford Bulletin of Economics and Statistics 1991; 53; 401-423.
Arango, S, Nadiri, M. I. Demand for money in open economy. Journal of Monetary Economics 1981; 7; 69-83.
Bahmani-Oskooee, M. The demand for money in an open economy: The United Kingdom. Applied Economics 1991; 23; 1037-1042.
Bahmani-Oskooee, M. The black market exchange rate and demand for money in Iran. Journal of Macroeconomics 1996; 18; 171-176.
Bahmani-Oskooee, M. How stable is M2 money demand function in Japan?. Japan and the World Economy 2001; 13; 455-461.
Bahmani-Oskooee, M, Barry, M. P. Stability of the demand for money in an unstable country: Russia. Journal of Post Keynesian Economics 2000; 22; 619–29.
Bahmani-Oskooee, M, Bohl, M. T. German monetary unification and the stability of the German M3 money demand function. Economic Letters 2000; 66; 203-208.
Bahmani-Oskooee, M, Brooks, T. J. A new criteria for selecting the optimum lags in Johansen's cointegration technique. Applied Economics 2003; 35; 875-880.
Bahmani-Oskooee, M, Chomsisengphet, S. Stability of M2 money demand function in industrial countries. Applied Economics 2002; 34; 2075–83.
Bahmani-Oskooee, M, Niroomand, F, Martin, M. Exchange rate sensitivity of the demand for money in Spain. Applied Economics 1998; 30; 607-612.
Bahmani-Oskooee, M, Pourheydarian, M. Exchange rate sensitivity of demand for money and effectiveness of fiscal and monetary policies. Applied Economics 1990; 22; 917-925.
Bahmani-Oskooee, M, Rehman, H. Stability of the money demand function in Asian developing countries. Applied Economics 2005; 37; 773-792.
Bahmani-Oskooee, M, Shabsigh, G. The demand for money in Japan: Evidence from Cointegration Analysis. Japan and the World Economy 1996; 8; 1-10.
Bahmani-Oskooee, M, Shin, S. Stability of the demand for money in Korea, International Economic Journal 2002; 16; 85–95.
Brown, R. L, J. Durbin, J. M. Evans. Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society 1975; 37; 149-163.
Chowdhury, Abdur R.. The Financial structure and the demand for money in Thailand. Applied Economics 1997; 29; 401-409.
Frenkel, J. A., Taylor, M. P. Money demand and inflation in Yugoslavia, 1980–1 989. Journal of Macroeconomics 1993; 15; 455–481.
Hafer, R. W, Jansen, D. W. The demand for money in the United States: evidence from cointegration tests. Journal of Money, Credit, and Banking 1991; 23; 155-168.
Hafer, R. W, Kutan, A. M. Economic reforms and the long-run money demand in China: implications for monetary policy. Southern Economic Journal 1994; 60; 936–945.
Hansen, G. and Kim, J. R. The stability of German money demand: tests of the cointegration relation. Weltwirtschaftliches Archiv 1995; 131; 286–301.
Hoffman, D. L, Rasche, R. H. Long-Run income and interest elasticities of money demand in the United States. The Review of Economics and Statistics 1991; 73; 665-674.
Johansen, S. Statistical analysis of cointegration vectors. Journal of Economics Dynamics and Controls 1988; 12; 231-254.
Johansen, S. Testing weak exogeneity and the order of cointegration in U.K. Money Demand Data. Journal of Policy Modeling 1992; 14; 313-334.
Johansen, S, Juselius, K. Maximum likelihood estimation and inference on cointegration: with applications to the demand for money. Oxford Bulletin of Economics and Statistics 1990; 52; 169-210.
Karfakis, C. I. Parikh, A. A cointegra¬tion approach to monetary targeting in Australia. Australian Economic Papers 1993; 32; 53–70.
Khalid, A. M. Modelling money demand in open economies: the case of selected Asian Countries. Applied Economics 1999; 31; 1129-1135.
Khan, A. H. Financial liberalization and the demand for money in Pakistan. Pakistan Development Review 1994; 33; 997-1006.
Kremers, J. J, Ericson, N. R, Dolado, J. J. The power of cointegration tests. Oxford Bulletin of Economics and Statistics 1992; 54; 325–47.
Laidler, E. W. D. The demand for money: theories, evidence and problems, 4th edition. HarperCollins College Publishers: London; 1993.
McNown, R, Wallace, M. S. Cointegration tests of a long-run relation between money demand and the effective exchange rate. Journal of International Money and Finance 1992; 11; 107-114.
Miyao, R. Does a cointegrating M2 demand relation really exist in Japan?. Journal of the Japanese and International Economies 1996; 10; 169–80.
Muscatelli, V. A, Papi, L. Cointegration, finan¬cial innovation and modelling the demand for money in Italy. The Manchester School 1990; 58; 242–59.
Obben, J. The demand for money in Brunei. Asian Economic Journal 1998; 12; 109-121.
Pesaran, M. H, Shin, Y. An autoregressive distributed lag modelling approach to cointegration analysis. In: Strom, S., Holly, A., Diamond, P. (Eds.), Centennial Volume of Rangar Frisch, Cambridge University Press, Cambridge, 1995.
Pesaran, M. H, Shin, Y, Smith, R. J. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 2001; 16; 289-326.
Pradhan, B. K, Subramanian, A. On the stability of the demand for money in India. The Indian Economic Journal 1998; 45; 106-117.
Tabesh, H. Demand for money and the black market exchange rate expectations: further empirical evidence. Journal of Economics 2000; 26; 1-9.
Tan, E. C. Money demand amid financial sector developments in Malaysia. Applied Economics 1997; 29; 1201-1215.
von Hagen, J. Monetary union, money demand and money supply: a review of the German monetary union. European Economic Review 1993; 37; 803–36.