Interest Free and Interest-Bearing Money Demand: Policy Invariance and Stability

This paper, using quarterly Iranian data for the period 1966-1998, extends the literature by investigating the stability of the interest free money demand function. The study also examines the stability of economic agents’ behavior in demanding interest bearing and interest free money. It was found that, contrary to interest bearing demand for money, both short  and long run demand for interest free money functions are stable and their coefficients are invariant with respect to policy and other exogenous shocks, as well as changes in regime.