Estimating Demand for Money in Iran Using Autoregressive Distributed Lag Method

Abstract

Demand for money is an important part of the macroeconomic models and the monetary policy. In this paper, we estimate the Iranian demand for money for the period 1958-2003 using the Autoregressive Distributed Lag (ARDL) method. The results show that the real money balance, gross domestic product, inflation, foreign exchange rate, and government budget deficit have been co-integrated with each other. We also use the error correction model for short-run dynamic analysis. The result shows the speed of adjustment toward the long-run balance is slow.

Keywords

• demand for money
• autoregressive distributed lag (ardl) method
• error correction model
• long-term equilibrium
• short-term dynamics
• iran