Examination of Affecting Factors on Iran’s Demand of Money with Utilizing Bayesian Model Averaging Approach

اقتصاد پولی مالی

Article 3, Volume 18, Issue 1, January 2012   

Document Type: پژوهشی

DOI: 10.22067/pm.v18i1.27589

Authors

Sadegh Bafandeh Imandoust^* ; Ghasemie Hesameddin

Abstract

Examination of demand of money and recognition of important factors, is one of the
important problems in macroeconomic. Identifying important factors that can affect
demand money function, beside other economic factors, guaranty successfulness for
economic policies. Semblance of many studies have been carried out to specify
factors affecting demand of money, indicate some scattering on choosing important
factors ,so results are different. Lack of knowledge about descriptive variables and
correct model of money demand, produce wrong model.
To avoid a prejudgment on the effective factors of Iran’s money demand (based on a
specific theory), Bayesian Model Averaging is utilized. As it is common, this
approach is based on the estimation of a regression model for many times (here
14,000) and estimation of coefficients with Bayesian Model Averaging. Data period
is between 1976 -2007.
Results show that GNP, CPI (consumer price index), formal exchange rate, ratio of
budget deficit on GNP, lagged dependent variable and CPI with lagged have
significant effects on demand of money.

Keywords

Demand of money; model uncertainty; Bayesian approach; Bayesian Model Averaging