Financial Liberalization and Money Demand in Morocco

This paper investigates whether the financial liberalization that Morocco has been undertaking since the early 1990’s has affected the demand for money. To achieve this analysis, the Johansen maximum-likelihood procedure is employed to estimate the long-run equilibrium relationship between real money aggregates (M1 and M3) and their determinants. The empirical results indicate that for both narrow and broad money demand for the period 1982Q1 to 2005Q4, there exist long-run money demand functions. These findings are corroborated by the error correction method. The results point also to the significance of foreign influences and more precisely to the relevance of the role of the foreign interest rate variable that was omitted in previous studies. Stability tests conducted don’t indicate the occurrence of a structural break in money demand.