The Determinants and Stability of Demand for Money: The Case of Azerbaijan

The main purpose of this study is to ascertain the determinants demand for money and its stability in Azerbaijan using monthly time series data spanning from January 2006 November 2020. Johansen cointegration, vector error correction model (VECM) Impulse Response Function were employed investigate relationship between real (M1), macroeconomic variables, namely income, inflation, interest rate exchange rate. CUSUM CUSUMSQ tests applied check whether function was stable during observed period. results cointegration reveal a long-run mentioned variables. Consistent with theory, VECM show that balances positively related income but it responds inversely confirms result VECM. Moreover, after incorporating tests, empirical over period, suggesting possible use narrow aggregate as target monetary policy Azerbaijan.