الطلب على النقود في المملكة العربية السعودية

Abstract EN

This paper is an attempt to study the factors affecting the demand for money in Saudi Arabia.

To acheave this goal the study used the three main factors widlely used in the literature to estimate the demand for money function, namley interest rate, Income, and Inflation, in adition to an institutional variable proxeid by the number of bank branches, using annual data covering the period from 1968 to 2004.

The study first tested the stationarity of the variables, the results indicated that money demand, income, and the institutional variable are second difference stationary, while interest rate and inflation are first difference stationary.

Accordingly, co-integration test and Error correction model cannot be used to study the relation between money demand and its determinants as both tests require first difference stationary variable.

Therefore, the study used Vector Autoregressive method to study this relation.

The results indicate that the explanatory variables explain between 60% to 77% of the variation in money demand, and that money demand is positively affected by income and inflation, and negatively affected by interst rate, while the impact of the institutional development variable is found to be negative on the demand for both narrow and broawd money, and positive on the demand for quasiy money.

The results indicate the lack of evidence on a stable long-run relation between money demand and its determinants, and thus the lack of evidence on a stable money demand function, which in turn means that the monetary authority cannot effectivly control this important variable.

This is in contradiction with the results obtained by previous studies on the subject.