University of Tehran Journal of Economic Research (Tahghighat- E- Eghtesadi) 0039-8969 43 2 2008 10 22 Demand for money and it's stability in Iran Demand for money and it's stability in Iran 27204 FA Journal Article 1970 01 01 The objective of this study is to estimate the demand for money in Iran using the autoregressive distributed lag (ARDL) approach to cointegration analysis. The empirical results show that there is a unique cointegrated and stable long-run relationship among M1 monetary aggregate, income, inflation and exchange rate. We find that the income elasticity and exchange rate coefficients are positive while the inflation elasticity is negative. This indicates that depreciation of domestic currency increases the demand for money, supporting the wealth effect argument and people prefer to substitute physical assets for money balances that are supporting our theoretical expectation. Our results also after incorporating the CUSUM and CUSUMSQ tests reveal that the M1 money demand function is stable between 1985 and 2006. JEL Classification: E41, E44, E4 The objective of this study is to estimate the demand for money in Iran using the autoregressive distributed lag (ARDL) approach to cointegration analysis. The empirical results show that there is a unique cointegrated and stable long-run relationship among M1 monetary aggregate, income, inflation and exchange rate. We find that the income elasticity and exchange rate coefficients are positive while the inflation elasticity is negative. This indicates that depreciation of domestic currency increases the demand for money, supporting the wealth effect argument and people prefer to substitute physical assets for money balances that are supporting our theoretical expectation. Our results also after incorporating the CUSUM and CUSUMSQ tests reveal that the M1 money demand function is stable between 1985 and 2006. JEL Classification: E41, E44, E4 https://jte.ut.ac.ir/article_27204_9eb52a35d36a1b46a891ce8f28c0c2cd.pdf