Money Demand Functions for Pakistan (Divisia Approach)
AbstractThe money demand function plays a key role in monetary policy formulation. Pakistan economy witnessed severe monetary problems in last few years, which call for a thorough investigation of the root cause. The study tried to estimate money demand function using Divisia type-weighted aggregates, instead of Simple sum official aggregates. Both long run and short run money demand functions were estimated and Stability was also tested. The money demand function based on broader Divisia aggregate (DivM2) was found to be the stable money demand function for Pakistan. The results indicated that the Divisia based money demand estimates were more realistic and had more information content. The study suggested that State Bank of Pakistan should abandon the Simple sum aggregation technique and switch over to the Divisia aggregates, which have more aggregation theoretic foundations.
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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34361.
Date of creation: 2011
Date of revision:
MONEY DEMAND FUNCTION; PAKISTAN;
Find related papers by JEL classification:
- B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William A. Barnett, 1996.
"Which Road Leads to Stable Money Demand?,"
- Adrian R. Fleissig & Apostolos Serletis, 2002. "Semi-non-parametric estimates of substitution for Canadian monetary assets," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 78-91, February.
- Mayer, Thomas, 1982. "Monetary Trends in the United States and the United Kingdom: A Review Article," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1528-39, December.
- Fleissig, Adrian R & Swofford, James L, 1997. "Dynamic Asymptotically Ideal Models and Finite Approximation," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 15(4), pages 482-92, October.
- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 247-274, March.
- John J. Seater & Adrian Fleissig & Allastair Hall, .
"GARP, Separability and the Representative Agent,"
Working Paper Series, North Carolina State University, Department of Economics
17, North Carolina State University, Department of Economics.
- Fleissig, Adrian R. & Hall, Alastair R. & Seater, John J., 2000. "Garp, Separability, And The Representative Agent," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 4(03), pages 324-342, September.
- James Swofford, 2005. "Tests of microeconomic foundations of a North American common currency area," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 420-429, May.
- Leigh Drake & Adrian R. Fleissig, 2004. "Semi-Nonparametric Estimates of Currency Substitution: the Demand for Sterling in Europe," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 374-394, 08.
- Leigh Drake & Terence C. Mills, 2005. "A New Empirically Weighted Monetary Aggregate for the United States," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 138-157, January.
- Fleissig, Adrian & Swofford, James L., 1996. "A dynamic asymptotically ideal model of money demand," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 371-380, April.
- Livio Stracca, 2004. "Does Liquidity Matter? Properties of a Divisia Monetary Aggregate in the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(3), pages 309-331, 07.
- Stracca, Livio, 2001. "Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area," Working Paper Series 0079, European Central Bank.
- Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
- Goodhart, Charles A E, 1982. "Monetary Trends in the United States and the United Kingdom: A British Review," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1540-51, December.
- Barnett, William A., 1980. "Economic monetary aggregates an application of index number and aggregation theory," Journal of Econometrics, Elsevier, vol. 14(1), pages 11-48, September.
- Barnett, William A, 1983. "New Indices of Money Supply and the Flexible Laurent Demand System," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 1(1), pages 7-23, January.
- Syed Muhammad Tariq & Kent Matthews, 1997. "The Demand for Simple-sum and Divisia Monetary Aggregates for Pakistan: A Cointegration Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(3), pages 275-291.
- Barnett, William A & Offenbacher, Edward K & Spindt, Paul A, 1984. "The New Divisia Monetary Aggregates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(6), pages 1049-85, December.
- Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
- Belongia, Michael T, 1996. "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 1065-83, October.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Richard G. Anderson & Barry Jones & Travis Nesmith, 1996. "Monetary aggregation theory and statistical index numbers," Working Papers 1996-007, Federal Reserve Bank of St. Louis.
- Hall, Robert E, 1982. "Monetary Trends in the United States and the United Kingdom: A Review from the Perspective of New Developments in Monetary Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1552-56, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.