Sectoral Analysis of the Demand for Real Money Balances in Pakistan
AbstractThe main objective of monetary policy in Pakistan, as in other countries, is to achieve price stability. In order to achieve the objective of stable prices, the State Bank of Pakistan is using M2 definition of money supply as an intermediate target variable to conduct the monetary policy. This choice of target variable is based on the long understanding that only the demand for M2 monetary aggregate is stable in Pakistan. The definition of money aggregates two main sectors of the economy that is business sector and household sector. Theories such as quantity theory, Keynesian and transactions, state that both sectors have diversified behaviour. Money demand behaviour of these sectors largely depends on the different sets of variables. Therefore the aggregation of these sectors is rather poor. Further the research conducted in Pakistan mainly concentrated on the estimation of aggregate money demand function by using annual data. Some of the studies, however, used quarterly data. They have estimated money demand functions by disaggregating data on monetary assets basis, particularly M1 and M2. However, relatively thin literature is available on the estimated money demand function by disaggregating business and household sectors. It is argued that money demand behaviour of different sectors of the economy may be different. In this paper the long-run cointegration relationship and the error correction model of the real demand for money in desegregated, business and personal sector, form are estimated by using quarterly data. Then the estimated error correction models are tested for structural break. The empirical importance of the real demand for money in disaggregate form is that it would provide new insight in the conduct of monetary policy in Pakistan
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.
Volume (Year): 40 (2001)
Issue (Month): 4 ()
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Abdul Qayyum, 2005.
"Modelling the Demand for Money in Pakistan,"
The Pakistan Development Review,
Pakistan Institute of Development Economics, vol. 44(3), pages 233-252.
- Mushtaq, Siffat & Rashid, Abdul & Qayyum, Abdul, 2013.
"On the Welfare Cost of Inflation: The Case of Pakistan,"
47549, University Library of Munich, Germany.
- Siffat Mushtaq & Abdul Rashid & Abdul Qayyum, 2012. "On the Welfare Cost of Inflation: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(1), pages 61-96.
- Khan, Rana Ejaz Ali & Hye, Qazi Muhammad Adnan, 2011. "Financial Liberalization And Demand For Money: A Case of Pakistan," MPRA Paper 34795, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Khurram Iqbal).
If references are entirely missing, you can add them using this form.