Testing the Expectations Theory of Money Demand Function in Iran

Usually the role of expectations in money demand function is raised. One of parameters that influences money demand is inflation and it reduces money demand level. Inflation in the economy is a function of other variables, including expectations. Inflationary expectations in the economy can be shaped as adaptive or rational. By this article, we test these concepts and show the function of money demand based on expectations, and report its estimations. As the results indicate the adaptive expectation describe better the demand function for money and it is a function of production level and inflation rate in Iran.