Abstract
This study examines the impact of financial innovation on money demand and to analyze the impact of money market disequilibrium on output gap using co integration modeling. After the confirmation of ADF result we use the cointegration technique for our first model and concluded that both the numbers of ATM and cards are negatively related to the demand for money. So in order to control the money demand we should increase the ATMs. The results also confirm that there exists a quantity theory with the inclusion of financial innovation in the money demand function. Our second model is related to the money market disequilibrium and the output gap. The findings of this second model shows that money market disequilibrium leads to wider the output gap.
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