Long-run money demand and financial innovation in Lebanon.

Abstract

A model for money demand has been tested for the Lebanese Economy to show the effects of financial innovation. Current research has found mix results that financial development has a positive influence on money demand while others refute this by claiming that innovation makes people hold less cash. We used Autoregressive Distributed Lag Approach with monthly and quarterly data over the period 1997-2017. Our findings show that financial innovation has ambiguous effects depending on the proxy chosen for financial innovation. Furthermore, results asserted the Gurley-Shaw hypothesis in which financial development increases the interest elasticity of money demand.