Examination of Affecting Factors on Iran's Demand of Money with Utilizing Bayesian Model Averaging Approach

Examination of demand of money and recognition of important factors, is one of the important problems in macroeconomic. Identifying important factors that can affect demand money function, beside other economic factors, guaranty successfulness for economic policies. Semblance of many studies have been carried out to specify factors affecting demand of money, indicate some scattering on choosing important factors, so results are different. Lack of knowledge about descriptive variables and correct model of money demand, produce wrong model.To avoid a prejudgment on the effective factors of Iran’s money demand (based on a specific theory), Bayesian Model Averaging is utilized. As it is common, this approach is based on the estimation of a regression model for many times (here 14,000) and estimation of coefficients with Bayesian Model Averaging. Data period is between 1976 -2007.Results show that GNP, CPI (consumer price index), formal exchange rate, ratio of budget deficit on GNP, lagged dependent variable and CPI with lagged have significant effects on demand of money.