The long-term determinants of money demand: An econometric study of the Moroccan case

Abstract

The objective of this work is to determine the long-term relationship of the demand for money in Morocco. Indeed, it is a question of defining the reasons for which agents prefer, in the long term, to hold liquid money instead of any other asset. To achieve this objective, we first presented, in a literature review, the theoretical analyzes and empirical approaches that have been addressed in this direction, because taking into consideration only the theories analyzing the demand function of money is insufficient to explain it well. Indeed, and to constitute a well-specified and explanatory model of this function, it is necessary to take into account, also, the results of the empirical studies carried out by the researchers for each theoretical assumption posed. Then we sought to determine these relationships by using an econometric application in the Moroccan case. This empirical study was carried out by applying the cointegration theory to Moroccan quarterly data spanning from the first quarter of 1992 to the fourth quarter of 2021 (120 Observations). Thus, according to the results obtained, we found that the demand for real money is linked to real income, the short-term interest rate and the inflation rate by a stable long-term relationship.

Keywords : Money demand, the long-term determinants, econometric study, cointegration theory

JEL Classification : E41, C01

Paper type: Empirical research