Purpose This study aims to develop a conditional framework to examine how policy uncertainty influences monetary holding behavior across different financial environments in the 17 Middle East and North Africa (MENA) countries classified during the period 1994–2024. Design/methodology/approach The study uses a comprehensive measure of policy uncertainty that captures uncertainty arising from both economic and political events. To estimate the augmented money demand function, the study applies advanced heterogeneous panel estimators, including the common correlated effects mean group and augmented mean group, complemented by panel dynamic ordinary least squares (OLS) and two-stage least squares techniques, to account for cross-sectional dependence, parameter heterogeneity and potential endogeneity. Findings The findings indicate that policy uncertainty compresses domestic liquidity holdings, with the magnitude of this effect varying across financial systems across the 17 countries in the MENA region. The estimates lend support to the long-lasting association between money demand and its main drivers. Importantly, the results represent that financial development (FD) significantly mitigates the negative impact of policy uncertainty, highlighting its role as a stabilizing factor in monetary dynamics. The results show that FD fundamentally reshapes how uncertainty affects liquidity preferences. Research limitations/implications One limitation of this study is the required 30-year time period for sufficient data to be available. This is considered one of the most important limitations the authors faced in this study. Practical implications The findings imply that FD should be viewed not only as a long-term growth objective but also as a monetary stabilization tool. In environments characterized by recurrent policy uncertainty, financial deepening reduces the sensitivity of money demand to shocks, thereby enhancing the reliability of monetary aggregates as policy instruments. The findings may guide the formulation of monetary policy strategies by the central banks of the MENA region countries. Originality/value This study contributes to the monetary economics literature by demonstrating that the association between policy uncertainty and money demand is not structurally invariant across financial systems. By conceptualizing FD as a structural moderating mechanism rather than a conventional control variable, this study introduces a conditional framework that advances the existing conditional monetary behavior model. This insight extends beyond the regional context and offers broader implications for how central banks in developing and emerging economies can enhance monetary resilience in uncertain environments.
Odeh et al. (2026) studied this question.