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Modeling Money (M2) Demand in Egypt - A Vector Equilibrium Correction Model

28 Pages Posted: 24 Dec 2011  

Ahmed Mohamed Rostom

George Washington University - Economics Department; The World Bank

Date Written: May 20, 2011


This paper empirically investigates the relationship between real money demand, real income, interest rates and real consumption. The paper provide a mixed strategy for estimating the money demand function that incorporates shifting from a system of equations vector auto regression (VAR) approach that maintains the information relating to the feedback between variables, followed by vector equilibrium correction model (VECM) in order to investigate the nature of short term and long term interaction and finaly an error correction model (ECM) and autoregressive distributed lag model (ADL). The paper concludes that real money demand in Egypt is stable and can be confidently considered by monetary authorities to adjust for long run growth in the real economy.

Keywords: Time-Series Models, Model Evaluation, Validation, and Selection, Money Demand, Economic Reform Policies

JEL Classification: C32, C52, E41, E65

Suggested Citation

Rostom, Ahmed Mohamed, Modeling Money (M2) Demand in Egypt - A Vector Equilibrium Correction Model (May 20, 2011). Available at SSRN: or

Ahmed Rostom (Contact Author)

George Washington University - Economics Department ( email )

2121 I Street NW
Washington, DC 20052
United States

The World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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