Int. j. econ. manag. soc. sci., Vol(4), No (1), January, 2015. pp.

8-11

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International Journal of Economy, Management and Social Sciences

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Predicting the Volume of Money in the Economic Geography of Iran

Masoud Saadat Mehr *
Department of Economy ,Payame Noor University, I.R.Iran.

Farhad Zand
Department of Social Science, Payame Noor University, I.R.Iran.
*Corresponding author: masd1352@yahoo.com

Keywords

Abstract

money volume
liquidity
methodology of Box Jenkins
economic Geography
Iran

Various economic forecasts are based on econometric methods and the great potential of these models in
estimating particular equations has led to the widespread use of these models. One of the popular methods of
time series modeling is average cumulative moving auto regression (ARIMA) method known as the Box Jenkins. In this paper, we use this technique along with time series data to forecast 1973 - 2009 models for
prediction of money volume and liquidity. Our results indicate that the volume of money and liquidity
follow a first-order autoregressive process so that the liquidity and money volume in each period, are
respectively 1.24 and 1.72 times as high as those at an earlier period. In this study, regarding the models
estimated, the volume of money and liquidity were estimated in up to 2016.

1.

Introduction

Economic forecasts based on econometric methods are of great potential in estimating specific equations in a way that has led to the widespread
use of these models. One of these models is ARIMA model (ARIMA) which is known as Box Jenkins methodology.
Because of the volume of money and liquidity are important monetary variables and Many economic variables such as inflation and interest
rates, are affected by money volume and liquidity, the current study seeks to predict the volume of money and liquidity in the economy of Iran.
In general, several studies regarding the forecasting methods in economics, business and finance have been accomplished throughout the world.
Bates and Granger [1], Makradiks and Winkler [2], Clemen [3], Alvaro [4], Armstrong and Collopy [5] have set out to predict different variables
in the areas of economics and business.
In these researches, the methods of ARIMA, neural networks or a combination of them is used. Most of these researchers` work has been in the
field of forecasting economic time series data such as GNP, money volume, exchange rates, inflation rates, stock prices, sales rate and interest
rate. Regarding the domestic studies, the following can be noted.
Azar and Rajabzadeh [6] using the ARIMA and neural network methods set out to forecast oil demand of OPEC. The research data were related
to oil demand of OPEC from 1960 to 2002 and oil extraction process for oil demand of OPEC was in the form of the ARIMA. Moshiri [7] in a
study tried to predict the rate of inflation in Iran. In this study, the Box Jenkins method and time series data were used.

2.

Methodology

For this research, method of Box - Jenkins was used. This prediction can be paid attention to by central bank authorities to be used in monetary
policies. Data required for this study were related to the time series from 1973 to 2009 prepared from the statistics released by the central bank.
2.1 Method of Box Jenki
This method is based on contingency analysis or stochastic time series under the philosophy that let's say our data. Unlike regression models in
which the dependent variable is explained using explanatory variables, in time series models of BJ, the dependent variable Yt can be explained
models using stopping values and stochastic error terms. Box Jenkins method is generally looking for how it can be determined that a time series
follows an autoregressive process (AR), Moving Average (MA) and static autoregressive moving average process (ARIMA). In this method,
first, degree of autoregressive process (P), the degree of MA (q) and statistics degree (d) are determined. The most important diagnostic tools are
autocorrelation function (ACF) and partial autocorrelation (PACF) .To determine the degree of statics degree, tests such as the Dickey Fuller test
and the ADF are used [8].
Table 1. Theoretical models of autoregressive and moving average.
pattern PACF
Notable changes in the set can be seen at intervals
An exponential fashion are reduced
An exponential fashion are reduced

Pattern ACF
An exponential fashion or with a wavy pattern or both are reduced
Significant change in the intervals of q are observed
An exponential fashion are reduced

Type of Model
AR(p)
MN(q)
ARMN(p,q)

Then, the selected model is estimated and its results are interpreted. Finally to determine the power of fitness of the model, the residuals obtained
from the estimation are specified and the values ACF and PACF of these residues are reviewed. If the correlation and partial correlations graphs
suggest that the residuals are purely random, it is no longer necessary to seek another ARIMA model [9].

3.

Results and Conclusion

3.1 Anticipated liquidity in Iran

First, by Dickey Fuller and ADF test, we will discuss the statics of liquidity variable. In this test, the Schwarz- Bayesian criterion was used and
to determine the autocorrelation, LM test was used. The static test results are given in Table 2.

Predicting the Volume of Money in the Economic Geography of Iran

International Journal of Economy, Management and Social Sciences Vol(4), No (1), January, 2015.

Table 2. Test of statics of liquidity variable in Iran

Augment Dickey-Fuller Test Statistic
Test critical values

1% level
5% level
10% level

t- Static
9.351757
-3.711457
-2.981038
-2.629906

Prob.
1.0000

According to Table 2, the statistics of ADF test for liquidity variable is equal to 9.35 while the critical value Mcnewn at 5% error level is equal
to 2.98; Thus, the liquidity variable is at the static level and statistics degree is equal to zero. The autocorrelation (ACF) and the partial
autocorrelation (PACF) are reviewed to determine the degree and type of autoregressive and moving average processes. These values are given
in Table 3.
Table 3. Correlation (ACF) and partial correlation (PACF) values of liquidity in Iran

As can be seen in Table 3, values of autocorrelation are decreasing exponentially with the increase of pauses (lags) while the partial
autocorrelation values form a batch mode; so we can conclude that the process is of autoregressive type. On the other hand, the values of the
partial autocorrelation is significant only in the first lag at the 5% error level and is set outside the determined lines at 5% error level, so the
process is of a first order autoregressive type. Therefore, model AR (1) is estimated for the liquidity the results of which are as the following:
MBt=5537.83 + 1.242MBt-1
t : ( 2.25 )
( 74.22 )
Prob: (0.03) ( 0.000)
R2=0.85 , DW= 1.87
According to the estimated model, liquidity (MB) in each period is directly associated with the previous period. So that liquidity amount in year t
is averagely 1.24 times as high as that in year t-1. Now to verify the accuracy of the estimated model, the autocorrelation and partial
autocorrelation functions are obtained for the residuals of the estimation. If the residual follow a process of pure turbulence, the model is an
appropriate one and there is no need to search for other models. The results of residual investigation are in Table 4.
Table 4. Estimation residual test

Masoud Saadat Mehr *, Farhad Zand

10

International Journal of Economy, Management and Social Sciences Vol(4), No (1), January, 2015.

According to Table 4, it can be seen that the correlation and partial correlation values for all lags are in the desired range. In other words, the
values of autocorrelation are not significant at all lags at the level of 5% error and the estimated residuals are white turbulence .therefore it
would be a good model for the prediction and estimation of the liquidity in Iran. The liquidity values in Iran are projected based on the
estimated model, in Table 5 up to the year 2021.
Table 5. prediction of liquidity volume in Iran
Liquidity (Milliards per Rials)
1901366
2367755
2947187
3667061
4561417
5672547
7052991
8768026
10898749

Year
2008
2009
2010
2011
2012
2013
2014
2015
2016

The values of liquidity in this table are available to the year 2008 and the values of the following years are predicted.
3.2 Prediction of money volume in Iran
Dickey Fuller test was used to check the statics of the money volume. to determine the number of lags , the Schwarz- Bayesian criterion was
used and to determine the autocorrelation LM test was used . The results are shown in Table 6.
Table 6. Testing statics of variable of money volume in Iran.

According to Table 6, the ADF test statistic is 3.78 while the critical value of mcnewn is 3.59 at the 5% error level. So the money volume
variable is static and statics degree is equal to zero. The autocorrelation (ACF) and the partial autocorrelation (PACF) are reviewed to determine
the degree and type of autoregressive and moving average processes. These values are given in Table 7.
Table 7. Correlation (ACF) and partial correlation (PACF) values of money volume in Iran

According to the above table, values of autocorrelation (ACF) decreases exponentially with the increase of the number of lags while
autocorrelation values are roughly discontinuous, so it can be concluded that the process is of autoregressive type. Since the value of
autocorrelation is significant in one lag out of range of error 5%, the AR degree is determined to be one. Thus, we can say that money volume
growth in Iran follows a first-order autoregressive process, i.e the AR (1). This model was estimated according to the Iranian data the results of
which are as follows:
Mt=-6076.01 + 1.717M t-1
t : ( 2.05 )
( 13.99 )
Prob: (0.041) (0.000)
R2=0.83 , DW= 1.94

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Predicting the Volume of Money in the Economic Geography of Iran

International Journal of Economy, Management and Social Sciences Vol(4), No (1), January, 2015.

According to the estimated model, the volume of money (M) in each period is directly related to the volume of money in the previous period. So,
that the volume of money per year on average is 1.717 times as high as that in year t-1. To verify the accuracy of the estimated model, the
autocorrelation and partial autocorrelation functions are obtained for the residuals of the estimation. The results are shown in Table 8.
Table 8. Test of estimating the residuals of model 10

According to Table 8, it can be seen that the correlation and partial correlation values for all lags are in the desired range. In other words, values
of autocorrelation are not significant at all lags at the level less than 5% error and the estimated residuals are white turbulence and estimated
model is an appropriate model to predict the volume of money in Iran. Regarding the estimated model, the volume of money in Iran is predicted
up to the year 2021 in Table 9.
Table 9. prediction of money volume in Iran
Money Volume (Miliards Rial)
314178
533367.6
909716.2
1555907
2665416
4570443
7841374
13457564
23100561

Year
2008
2009
2010
2011
2012
2013
2014
2015
2016

In this study, to predict the volume of money and liquidity in the economy of Iran, the data and statistics were prepared through time series data
of the central bank. Then, the trend of money volume, and liquidity of different periods were described. In this research, to determine a model of
predicting money volume and liquidity method of Box - Jenkins was used. This method seeks to determine the autoregressive (AR), moving
average (MA) or static autoregressive moving average (ARIMA) process. Tools necessary to do so are values of autocorrelation and partial
autocorrelation. The results showed that the volume of money and liquidity in Iran follow a first-order autoregressive process. Therefore, the
proposed models were estimated for the money volume, and liquidity. The results showed that the volume of liquidity in a period is directly
related with that of a previous period so that liquidity in a period is 1.24times as high as that in the previous period. Also the volume of money
has a direct relation to that of the previous period, so that the volume of money in any period is 1.72 times as high as that in a previous period.
According to model estimated, the amount of money volume and liquidity in Iran were estimated and predicted up to the year 2006.

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