The demand function of money in algeria (1964-2010): existence and stability tested by high fluctuation
This paper examines the characteristics of an empirical model for money demand in Algeria (1964-2009), focusing on its parametric stability. We use co-integration model estimated with the Johansen’s multivariate maximum likelihood approach. Long-run money demand model, resulting from a co-integrated system of four variables (MM2 GDP CPI Txint), shows satisfactory results within sample. We found that the high movements (level shifts) in aggregate variables during the period (1998-2008) have no significant disturbance effects on money demand model stability. However, the results suggest that the model shows more robustness with large sample. Our study suggests that the speeds of both nominal and real adjustment of money demand are steel slow. The results obtained confirm the main conclusions in global concordance with theoretical background.