Measuring Money Demand Function In Saudi Arabia: : A Time Series Analysis

Abstract

This study aims to analyze money demand function in Saudi Arabia over the period 1990-2020 using annual time series data. ARDL bounds testing approach is used to investigate the cointegration between the selected variables of the model. The empirical findings indicate the existence of long-run co-integration1 relationship between money demand and its determinants, namely real income, inflation and interest rate. Real income and inflation are positively related to money demand. Interest rate is negatively related to money demand. However, the estimated error correction model shows that most of the determinants do not have significant impact on the demand for money over the short run. The study recommends additional variables such oil prices and government spending need to be included in money demand function in Saudi Arabia.