Applicability of Money Demand Models in Bulgaria: Empirical Evidence for the Period 2015–2025

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Pages: 76-82

Abstract:

This study examines the applicability of the money demand theories developed by Irving Fisher, John Maynard Keynes, and Milton Friedman using empirical data from Bulgaria for the peri od 2015–2025. The results show that Fisher’s quantity theory holds as an identity and provides a rea sonable long-run description of the relationship between money supply and nominal GDP. However, the instability of the velocity of money limits its short-term explanatory power. The Keynesian model is partially confirmed, as income has a strong and statistically significant effect on money demand, while the interest rate appears insignificant. Similarly, Friedman’s model demonstrates high explan atory power, but only the income variable is statistically relevant, whereas interest rates and inflation do not significantly influence money demand. Overall, the findings suggest that in Bulgaria, money demand is primarily driven by income and remains relatively insensitive to financial variables. This reflects the country’s specific economic environment, including the currency board arrangement and relatively stable financial conditions.

Keywords:

money; money demand models; monetary policy; monetary aggregates.

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