Journals Information
Universal Journal of Accounting and Finance Vol. 10(2), pp. 367 - 375
DOI: 10.13189/ujaf.2022.100201
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The Determinants and Stability of Demand for Money: The Case of Azerbaijan
Sugra Ingilab Humbatova 1,2,*, Nazrin N. Ramazanova 3
1 Department of Economy and Management, International Centre of Graduate Education (ICGE), Azerbaijan State University of Economics (UNEC), Azerbaijan
2 Department of World Economy, Baku Engineering University (BEU), Azerbaijan
3 International Center for Graduate Education (ICGE), Azerbaijan State University of Economics (UNEC), Azerbaijan
ABSTRACT
The main purpose of this study is to ascertain the determinants of demand for money and its stability in Azerbaijan using monthly time series data spanning from January 2006 to November 2020. Johansen cointegration, vector error correction model (VECM) and Impulse Response Function were employed to investigate the relationship between real money demand (M1), and macroeconomic variables, namely income, inflation, interest rate and exchange rate. CUSUM and CUSUMSQ stability tests were applied to check whether the money demand function was stable during the observed period. The results of Johansen cointegration reveal a long-run relationship between mentioned variables. Consistent with money demand theory, the VECM results show that the demand for real money balances is positively related to income but it responds inversely to inflation, interest rate and exchange rate. Impulse Response Function confirms the result of VECM. Moreover, after incorporating the stability tests, the empirical results show that real money demand function is stable over the observed period, suggesting possible use of the narrow money aggregate as a target of monetary policy in Azerbaijan.
KEYWORDS
Money Demand, Johansen Cointegration, Error-Correction Model, Stability
Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Sugra Ingilab Humbatova , Nazrin N. Ramazanova , "The Determinants and Stability of Demand for Money: The Case of Azerbaijan," Universal Journal of Accounting and Finance, Vol. 10, No. 2, pp. 367 - 375, 2022. DOI: 10.13189/ujaf.2022.100201.
(b). APA Format:
Sugra Ingilab Humbatova , Nazrin N. Ramazanova (2022). The Determinants and Stability of Demand for Money: The Case of Azerbaijan. Universal Journal of Accounting and Finance, 10(2), 367 - 375. DOI: 10.13189/ujaf.2022.100201.