An Estimation of Iran Money Demand Function Considering Asymmetric Effects of Exchange Rate and Household Religious Costs

AbstractThere are many studies about demand for money in Iran, varying in variables and methods. But in this research, first, we used real amount of money, real M1, as dependent variable. Real GDP, real interest rate, real exchange rate, and real household religious costs are explanatory variables. Second, we included household religious costs (urban and rural) as a religious measure of Iran Islamic-based economy. And third, we employed NARDL framework to determine asymmetric effects of exchange rate and household religious costs on M1, simultaneously.By employing NARDL method and using bounds testing approach and, results demonstrate that there is a cointegration relationship between variables. Both GDP and interest rate show positive long run effects on M1. Furthermore, employing Wald test to check asymmetric effects revealed that negative and positive movements of exchange rate and household religious costs have asymmetric effects on M1, both in short and long run.Keywords: Money Demand, Household Religious Cost, Nonlinear ARDLJEL Classification: E41, C32