Determinants of money demand and its stability in Morocco

Abstract

This research paper aims to investigate the determinants and stability of money demand in Morocco, based on monthly data from January 2004 to December 2020. We employ the ARDL methodology to analyze the long-term and short-term determinants of money demand in Morocco. Additionally, we use CUSUM and CUSUMSQ tests to examine the stability of the demand for money. The cointegration evidence obtained from the data during the study period suggests a long-term relationship of real money balances to the variables considered, which include real GDP, inflation, interest rates, and financial innovation. These long-term and short-term findings are consistent with the theory of money demand. Moreover, the stability tests for CUSUM and CUSUMSQ provide evidence of a stable real money demand function during the analyzed period.