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INTEREST RATE AND THE MONEY DEMAND FUNCTION IN DEVELOPING COUNTRIES: The Case of Saudi Arabia

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  • Ahmad M. A. Ghamdi

Abstract

Due to lack well-developed financial market and the Islamic prohibition of a predetermined interest rate,one can expect the opportunity cost of holding money in Saudi Arabia and some developing countries to be captured mainly by the inflation rate and some measures of external monetary and financial factors. The demand for money function developed here takes into consideration the effect of such factors. The empirical results of the estimated money equation for Saudi Arabia suggest that an increase in real income tends to increase the demand for money but, high inflation rates tend to lower it. The empirical evidence also indicated that foreign interest rates and exchange rate variation have a effect in the Saudi money demand function.

Suggested Citation

  • Ahmad M. A. Ghamdi, 1989. "INTEREST RATE AND THE MONEY DEMAND FUNCTION IN DEVELOPING COUNTRIES: The Case of Saudi Arabia," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 8(2), pages 167-177.
    • Handle: RePEc:pje:journl:article1989wini
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    Cited by:

    1. BENDOB, Ali & SI MOHEMMED, Kamel, 2014. "La relation entre le taux de change parallèle et la demande de la monnaie Cas de l’Algérie durant 1980-2010: Une approche économétrique [The relationship between the parallel exchange rate and dema," MPRA Paper 76085, University Library of Munich, Germany, revised 2014.

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