Estimation of Money Demand Function in Iran Including Households Religious Costs: A NARDL Approach

Money demand determinants vary in every economy. There are many studies about Iran money demand function, which employed different variables and estimation methods. In this study, broad money (M2) is dependent variable and GDP, interest rate, exchange rate and household religious costs are descriptive variables. Household religious costs (urban and rural) are included in Iran money demand function as a religious factor because of Iran Islamic-based economy. We used NARDL method with quarterly data between 1376 and 1396, to determine if household religious costs have symmetric or asymmetric effects on Iran money demand. Bound testing approach shows a cointegration between variables, hence, we can interpret the long-run coefficients. Results show that all explanatory variables are statistically significant. Estimated coefficients of GDP, interest rate and exchange rate are 0.82, 0.01 and -0.17, respectively. Household religious costs show asymmetric effects, where estimated coefficients of negative and positive changes in household religious costs are -0.37 and 0.31, respectively.