Abstract
Money demand is one of the most important macro-economic variables that could be of great importance to the economic prospect of a country. Therefore, awareness on how this function behaves and by adoption of appropriate economic policies, it is possible, by and large, to avoid the emergence of disorder. The present study, employing the annual time series data related to Iranian economy during 1973-2009, tries to investigate possible relationships between financial liberalization and money demand stability in Iran, in the form of 4 models. To do so, Zivot-Andrews (1992) Unit Root Test was applied in order to clarify endogenous structural changes and Gregory-Hansen (1996) Cointegration Test was administered to investigate the long-run relationships between financial liberalization and money demand stability in Iran, with an emphasis on the structural breaks during the period under study. The results of the study show that by taking the structural break into consideration, there is a significant short and long run relationship between financial liberalization and money demand stability in Iran.
Highlights
Money demand is an important function when analyzing effects of macroeconomic policies
Summaries and conclusion of studies reviewed: Many studies have been done on money demand stability in Iran and other countries
The results show that within the periods under study, money demand function has had certain stability
Summary
Money demand is an important function when analyzing effects of macroeconomic policies. Money demand is an important function in transmission of monetary policies to real sectors of economy; as a result, it should be stable enough. A number theoretical and empirical studies has been performed on estimation of money demand function, most of which are conducted in U.S and European countries. The knowledge of globalization is spreading more rapidly throughout the world due to the development in the field of communication and technology which will make the world economies more interdependent This is generalizable to other regions such as the Middle East, a region that Iran is a part of it. This study aims to examine possible effects of financial liberalization on the stability of money demand in Iran. The last section provides conclusions and suggestions for future research
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