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Demand and Currency Substitution: New Evidence from the Iranian Economy

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Abstract

The ARDL bounds testing procedure advanced by Pesaran, et al. (2001) is used to estimate a quarterly model of the long-run money demand for postrevolution Iran, and test for its stability. Using quarterly data from 1980:2 to 2003:1, we find support for the existence of stable money demand functions for both m1 and m2 real balances. In addition, three factors-real income, inflation, and the black market foreign exchange rate exert statistically significant and meaningful effects on real balances. In particular, we find evidence in favor of currency substitution for m1 real balances.

Suggested Citation

  • Bolhassani, Marzieh & Mohammadi , Hassan & Payne, James E., 2003. "Demand and Currency Substitution: New Evidence from the Iranian Economy," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 56(4), pages 423-433.
    • Handle: RePEc:ris:ecoint:0146
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    Cited by:

    1. Andreea Andronescu & Hassan Mohammadi & James Payne, 2004. "Long-run estimates of money demand in Romania," Applied Economics Letters, Taylor & Francis Journals, vol. 11(14), pages 861-864.

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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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