Estimating the Demand Function for Money in Egypt During the Period (1970 - 2014)

This research aims to estimate the narrow and broad concept of the demand for money, and examine the extent of its stability in the short and long run during the past four and half decades in Egypt, in order to analyze the behavior of the demand for money and the factors affecting it, and to determine the relative importance of each factor, therefore contributing to the decision making in the monetary policy. the aim of the research is achieved through studying the demand for money in the economic literature, the evolution of the monetary variables in Egypt, and then the research uses the cointegration approach ARDL model to estimate the longrun relations and the ECM to estimate the short run relations. Moreover, the model stability is examined by (CUSUM) and (CUSUMSQ) test.Egypt's economy is suffering from economic instability, at the national level represented by the high inflation rate, or on the international level represented by the continuous decline in the value of the national currency. This is because of the growth rate of the money supply was more than three times the real GDP growth rate, which indicates that  the monetary policy does not succeed in achieving its goals, making a negative impact on the level of economic performance.The econometric model’s results show that a longrun relationship between the demand for money and its determinants exists in the long run. Moreover, the effect of the real domestic product on the demand for money (M1 & M2) is positive and elastic, whereas the effect of the inflation is negative and inelastic. Whereas the effect of the exchange rate and the real interest rate is negative on M1, it is found to be positive on M2. Finally, the monetary and fiscal reforms have a negative effect on the (M1) and it doesn’t have any significant impact (M2).The shortrun results show that the real gross domestic product has a positive impact, while the inflation rate has a negative impact on the demand for money with its two concepts (M1&M2). The speed of adjustment is significant and big in the case of M2, but significant and small in the case of M1. The demand for money function is stable, the explanatory power of the models is very high, the model has passed all the statistical tests, then, the results are reliable and the models are fitted well.