Econometric Analysis of Money Demand in A Dollarized Economy: The Case of Tajikistan

After gaining independence, Tajikistan undergoes explosive reform. However, applied analysis of the conducted macroeconomic policy was not carried per se. This paper is filling this gap by conducting quantitative analysis of money demand, which is instrument of economic development. The main objective of this paper is to estimate stability of the money demand function in Tajikistan and provide an empirical analysis of factors that influence money demand. This analysis has done on the base of standard approach such as the ARDL Bound Test approach and vector error-correction model with the main objective to determine the factors which, in both short-and long-term, influence its movements. The findings of ARDL bound testing confirms the long run relationship between all type of money demand, economic activities, exchange rate and price level. Further, we found instability of the money demand function under reviewed sample. The bidirectional causality between aggregated money demand, economic activity, exchange rate has been noticed. The empirical analysis suggests that the money demand is unstable, one of the reasons being the dynamic nature of changes in the financial system of Tajikistan and could not be used for the purpose of targeting monetary aggregates. Copyright (c) 2018 JAEBR