Estimating the money demand function for Saudi Arabia using divisia monetary aggregate

摘要

This paper constructs the broader Divisia monetary aggregate (D2) for the Kingdom of Saudi Arabia over the period from 1999 to 2018. Unlike the traditional money supply aggregate (M2), movements of the Divisia monetary aggregate seems to reflect the domestic economic developments and hence can be very useful when setting macroeconomic policies in the Kingdom. In addition, the paper applies the Keynesian Money Demand Theory to estimate the demand for money using the Divisia monetary aggregate. The findings confirm the stability of the money demand function for Saudi Arabia.