Iranian Journal of Economic Research

Testing Currency Substitution in Iran an Application of Auto Regressive with Distributed Lags (ARDL) Model

Authors

Amir Mansour Tehranchian 1
Masoomeh Noroozi Beairami 2

1 Assistant professor of economics, Department of Economics, Mazandaran University

2 M.A. of economics, Mazandaran University Department of Economics, Mazandaran University

Abstract
This article attempts to univestigate the phenomon of currency substitution in Iranian economy, using the ARDL model. For this purpose both long-run and short-run demand functions were estimated using the statistical data for 1974-2009 period. According to our findings, currency substitution both in long-run and short-run were confirmed with long-run substitution having a more powerful effect than long-run substitution. Also, it is indicated that the direct effect of income and the indirect effects of real interest rate and inflation on demand for money in the long-run were greater than in those in the short-run. The ECM estimated from the real demand function for money was -0.24 which expresses a rather slow process of currency adjustment in Iran.
 

Keywords

: Currency substitution
Currency demand
Auto Regressive with Distributed Lags (ARDL) model

  • Receive Date 23 April 2016
  • First Publish Date 23 April 2016

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