International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

The Effect of Inflation Uncertainty on Money Demand in Islamic Republic of Iran
Ebrahim Bahrami Nia, Sayed Hosein Izadi, Dr. Fariba Chavoshzadeh Tafti

In this paper, we measure and analyze the effect of inflation uncertainty on money demand and quasi money in Islamic republic of Iran based on time serious quarterly data from 1990:2-2010:3.This paper uses an EGARCH method to model inflation uncertainty in Iran. We also used VECM method to estimate a long run relationship between demand for real money and explanatory variables. Our result show that inflation uncertainty has effect on money demand and quasi money in Iran and increase in inflation uncertainty leads to decrease in money demand. In other words, by increase in inflation uncertainty, economic agents prefer to less demand for money, because in high uncertainty condition, people prefer to use those asset has less risk of maintenance.

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