Estimating the demand function for money in Yemen
ARDL cointegration approach
DOI:
https://doi.org/10.58963/qausrj.v1i20.178Keywords:
Cash balances , Yemeni economy , interest rateAbstract
In this paper we investigate both the long and short-run relationship between real money balances, real income, inflation rate, foreign interest rate and real effective exchange rate with reference to Yemen over the period 2005:01-2014:11 using ARDL approach which is a newly developed econometric technique. The estimated results indicate that in the long-run real income, inflation rate, interest rate and nominal exchange rate have a significant impact on real money balances in Yemen. The dynamics of real money demand show that the effects interest rate and the exchange rate are much smaller in the short run than long run. The results also reveal that the demand for real money balances in Yemen is stable. The a stable demand for money function is essential for the conduct of effective monetary policy.
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