Title: Money demand and black market exchange rate: a cointegration approach with structural break

Authors: Mouyad Al Samara; Charfeddine Lanouar; Zouhair Mrabet

Addresses: Department of Finance and Economics, College of Business and Economics, Qatar University, P.O. Box 2713, Doha, Qatar ' Department of Finance and Economics, College of Business and Economics, Qatar University, P.O. Box 2713, Doha, Qatar ' Department of Finance and Economics, College of Business and Economics, Qatar University, P.O. Box 2713, Doha, Qatar

Abstract: This paper examines different specifications of the money demand function by including both black market exchange rate and oil prices as additional variables in Syria for the period 1990Q1-2009Q4. In order to test the stability of the proposed money demand function specifications, we apply the cointegration approach with structural breaks. The empirical results provide strong evidence for the existence of a stable long run relationship with shift in the cointegration vector. In particular, we found that 28% of the money demand adjustment, following a short-run shock, occurs in the following period. Moreover, the results show that the two additional variables, black market exchange rate and the oil price, play a vital role in determining the money demand in Syria.

Keywords: money demand; cointegration test with structural break; black market exchange rate.

DOI: 10.1504/AAJFA.2017.084231

Afro-Asian Journal of Finance and Accounting, 2017 Vol.7 No.2, pp.177 - 199

Received: 14 Dec 2015
Accepted: 17 Oct 2016
Published online: 21 May 2017 *

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