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Modelling the Demand for Money in Pakistan

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Author Info
Qayyum, Abdul

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Abstract

The study estimates the dynamic demand for money (M2) function in Pakistan by employing cointegration analysis and error correction mechanism. The parameters of preferred model are found to be super-exogenous for the relevant class of interventions. It is found that the rate of inflation is an important determinant of money demand in Pakistan. The analysis reveals that the rates of interest, market rate, and bond yield are important for the long-run money demand behaviour. Since the preferred model is super-exogenous, it can be used for policy analysis in Pakistan.

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File URL: http://mpra.ub.uni-muenchen.de/2057/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2057.

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Date of creation: 2005
Date of revision: 2005
Publication status: Published in The Pakistan Development Review 44.3(2005): pp. 233-252
Handle: RePEc:pra:mprapa:2057

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Related research
Keywords: Money Demand super exogenous error correction cointegration Pakistan

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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

References listed on IDEAS
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  1. Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier. [Downloadable!] (restricted)
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  3. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
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  4. Hendry, David F. & Ericsson, Neil R., 1991. "Modeling the demand for narrow money in the United Kingdom and the United States," European Economic Review, Elsevier, vol. 35(4), pages 833-881, May. [Downloadable!] (restricted)
    Other versions:
  5. Daniel L. Thornton, 1983. "Why does velocity matter?," Review, Federal Reserve Bank of St. Louis, issue Dec, pages 5-13. [Downloadable!]
  6. Mike Artis & Andreas Beyer, 2004. "Issues in Money Demand: The Case of Europe," Journal of Common Market Studies, Blackwell Publishing, vol. 42(4), pages 717-736, November. [Downloadable!] (restricted)
  7. Qayyum, Abdul, 1998. "Error Correction Model of the Demand for Money in Pakistan," MPRA Paper 2582, University Library of Munich, Germany, revised 1998. [Downloadable!]
  8. Ahmad, Mushtaq & Khan, Ashfaque H., 1990. "A reexamination of the stability of the demand for money in pakistan," Journal of Macroeconomics, Elsevier, vol. 12(2), pages 307-321. [Downloadable!] (restricted)
  9. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  10. Bruggeman, Annick, 2000. "The Stability of EMU-Wide Money Demand Functions and the Monetary Policy Strategy of the European Central Bank," Manchester School, University of Manchester, vol. 68(2), pages 184-202, March. [Downloadable!] (restricted)
  11. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1, pages 19-46. [Downloadable!] (restricted)
  12. Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Blackwell Publishing, vol. 12(5), pages 533-72, December. [Downloadable!] (restricted)
  13. Stephen G. Hall & Nicholas G. Zonzilos, 2003. "An Indicator Measuring Underlying Economic Activity in Greece," Working Papers 04, Bank of Greece. [Downloadable!]
  14. Sophocles N. Brissimis & George Hondroyiannis & P.A.V.B. Swamy & George S. Tavlas, 2003. "Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece," Working Papers 01, Bank of Greece. [Downloadable!]
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  15. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December. [Downloadable!] (restricted)
  16. H. Peter Boswijk & Jurgen Doornik, 2003. "Identifying, Estimating and Testing Restricted Cointegrated Systems: An Overview," Economics Papers 2003-W10, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  17. Abdul Qayyum, 2001. "Sectoral Analysis of the Demand for Real Money Balances in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 953-966. [Downloadable!]
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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