The Effect of Population Age Structure Change on the Component of Money Demand in the Iranian Economy

Document Type : Original Article

Authors

1 Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University

2 MA in Economics, Faculty of Economics and Political Science, Shahid Beheshti University

3 MA in Economics, Faculty of Economics and Political Sciences, Shahid Beheshti University

Abstract

In the literature, money demand is usually related to some key variables such as income, interest rate, exchange rate and inflation. But in the societies that population age distribution has changed drastically, age structure is also an important explanatory variable that should be considered in a well defined money demand function. The absence of such variable from money demand function might not lead to a co-integrated equation. Hence the estimated parameters would not be reliable. In this article, by the aid of Ando and Modigliani’s life cycle theory of consumption, three money functions are specified for the components of liquidity that encompasses a variable which represents changes in the age distribution of the society. The specified equations are estimated using time series data for the period 1959 to 2014. ARDL method of estimation is adopted. The results show that by increasing the portion of middle age group in the population, who’s marginal propensity to consume is low, the demand for currency and checking accounts decreases while the demand for time deposits tend to increase.

Keywords

References

- Adibpour, M, & Elhami, M. (2014). Exchange Rate Volatility and the Demand for Money in Iran. Journal of Economic Reaserch, 22(10) , 104-122 (In Persian).
- Alban, A.(2013). Estimating Money Demand Function Using Cointegration Analysis: The Case of Canada. European Scientific Journal,
(9) 16, 304-315.
- Ando, A., & Modigliani, F.(1963). The Life Cycle Hypothesis of Saving. American Economic Review, 53(1), 55- 84.
- Apergis, N. (2015). Long-run Estimate of Money Demand: New Evidence from East Asian Countries and the Presence of Structural Breaks. Applied Economics, 47(31), 3276-3291.
- Arango, S., & Nadiri MI. (1981).Demand for Money in Open Economies. Journal of Monetary Economics, 7(1), 69–83.
- Arshad Khan, M., & Sajjid, M. Z. (2005). The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Approach. The Lahore Journal of Economics, 10(2), 87-99.
-Azim, P., Ahmed, N., Sami U.B.Z. & Zakaria, M. (2010). Demand for Money in Pakistan: an ARDL Approach. Global Journal of Management and Business Research, 10(9),76-80.
- Bahmani-Oskooee, M., & Malixi, M. (1991). Exchange Rate Sensitivity of the Demand for Money in Developing Countries, Applied Economics, 8(23), 1377-1384.
-Barros C. P., Richardo, F., & Gil-Alana L. (2016). The Demand for Money in Angola. Journal of Economics and Finance , (41)2, 408-420.
-Baumol, W.J. (1952). The Transactions Demand for Cash: An
Inventory Theatrical Approach. Quarterly Journal of Economics, 66, 545-56.
- Fetros M., & Hoseini Doust, E. (2013). Estimation of Money Demand Function and To Determine the Threshold Level of Inflation in Iran, Journal of Economic Research , 23(73), 153-178 (In Persian).
- Gujarati, D. (1968). The Demand for Money in India: Further Evidence. Journal of Development Studies, 6(1), 66-159.
- Hozhabr Kiani, K. (1997). Investigation of Stability of Money Demand and the Dynamic Aspects of It in Iran. Monetary and Banking Research Institute, 1(1), 71-73 (In Persian).
- Hozhabr Kiani, K. (1999), Investigation of Stability of Money Demand and the Dynamic Aspects of it in Iran. Journal of Economic and Money, 1(1), 71-73 (In Persian).
-Huang, C., Lin, C. J. & Cheng, J. (2011). Evidence on Nonlinear Error Correction in Money Demand: The Case of Taiwan. Applied Econometrics, (33), 1727-1736.
-Keynes, J. M. (1930). A Treatise on Money, 2th Edition, London: Macmillan.
- Keynes, J.M. (1936), The General Theory of Employment, Interest and Money, New York: Harcourt, Brace.
- Khalili Araghi, M., Abasinezhad, H., & Gudarzi Farahani, Y., (2012). Transaction Demand for Moneyin Iran: Johansen and Juselius Approach. Journal of Economic Research, (20)5. 1-26. (In Persian).
- Kumar, S., Webber , D., & Fargher, S. (2010).Money demand stability : A case study of Nigeria , MPRA Paper 26074, University Library of Munich, Germany.
- Mazhari, R. (2015), Uncertainty in Money Demand in Iran, Journal of Macroeconomics, 20(10), 101-131 (In Persian).
-Mundell. A.R. (1963). Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rate, Canadian Journal of Economics and Political Science٫, 29(4), 112-119.
- Noferesti, M. (2011). Population Development and Demand for Money in Iran. Trend of Economic Research, 19(58), 15-31 (In Persian).
- Noferesti, M., &  Ahmadi, M, (2008). The Investigation of the Effect of Population Age Structure on Society Savings. Economic Research Quarterly, 8(1), 43-56 (In Persian).
- Noferesti, M., & Madani Tonekaboni , S.(2006). The Investigation of the Effect of Population Age Structure on Expenditure of Private Sector, Peik-e-Noor, Economy (2). Journal of Payam Noor University, 4(2), 106-116 (In Persian).
-Prakash, S., & Manoj, K .(2012). Is Long-Run Demand for Money Stable in India? An Application of the Gregory-Hansen Model, the IUP Journal of Applied Economics, 11(2), 1-15.
-Jafari Samimi, A., Elmi., Z .,& Sadeghzade Yazdi, A. (2005). Estimation of Short Run and Long run Demand for Money in Iran with using ARDL Approach. Iranian Journal of Economic Research, 8, 1-15 (In Persian).
- Jafari Samimi. A., Elmi. Z., & Sadeghzadeh Yazdi, A.(2006). Survey of Stabilization Demand of Money in Iran: Johansen and Juselius Approach. Journal of economics Research, 72, 191- 225 (In Persian).
- Shakeri, A. (2010). Macroeconomics Theory and Policies. Tehran, Rafe Publications (In Persian).
- Shirin Bakhsh, Sh. (2006). Relationship Between Demand of Money and Important Factors, Economics Research Letters, 5(1), 133-152 (In Persian).
- Tin, J. (2000). Transaction Demand for Money: The Micro Evidence. Quarterly Journal of Business and Economics, (24) 2, 110-121.
-Tobin, J. (1956). The Interest-Elasticity of Transactions Demand for
Cash. Review of Economics and Statistics, 38(3), 241-247.
-Wilford, D. S., & Wilford, W. T. (1978).On the monetary Approach to the Balance of Payments: the Small, Open Economy. The Journal of Finance, 33(1), 319-323.
Journal of Economics and Modelling
Volume 8, Issue 30 - Serial Number 30
September 2017
Pages 123-141

Files

Share

How to cite

Statistics