Analysis of money demand function in Algeria 1972-2010 using cointegration methodology

Abstract

This study aims to identify the most important factors affecting the demand for cash balances in Algeria during the period 1972-2009, by using both  Dickey–Fuller  and Phillips Peron tests to test the degree of stationary of the study’s variables, and Johansen co-integration methodology to test the existence of long run stable relationship .The results of the statistical tests showed that all the variables of the study are stationary in the first differences and that the demand for money, the real output, inflation, exchange rate and discount rate are cointegrated. In addition, The results of the estimation of the long run relationship of demand for money indicate that the real output affects Positively the demand for money, unlike the rest of the variables that negatively affect it.

Keywords: Money demand function , Cash balances, Co-integration methodology, Demand for money in Long term, stability of variables.

Jel Classification Codes : C13, E47.