Measuring the Stability of Money Demand in Algeria: An Empirical Study Over the 1980–2016 Period

Abstract

It is well known in the literature that instability in demand for money can be attributed to a number reasons, such as financial innovation, the deregulation of the financial markets, an alteration in the exchange rate regime, an unexpected jump in oil prices, and currency substitution prompted by a rapid depreciation in the existing currency under a floating exchange rate system. In this study, we take annual data from Algeria for the 1980–2016 period and apply CUSUM and CUSUMQ tests combined with Johansen’s cointegration technique, error correction model, and impulse response analysis to show that the demand for money is stable in Algeria.

Keywords:Money Demand, Stability, Error-Correction Model, Cointegration Test, Impulse-Response.

JEL Classification: E41