Modeling Money (M2) Demand in Egypt - A Vector Equilibrium Correction Model
28 Pages Posted: 24 Dec 2011
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: Suggested Citation