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Determinants of Money Demand in Pakistan: Disaggregated Expenditure Approach

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  • Abdullah, Muhammad
  • Chani, Muhammad Irfan
  • Ali, Amjad

Abstract

The main focus of the study is to find the determinants of money demand in Pakistan. We used disaggregated expenditures approach in this regard. To find the co-integration among the variables of the model, Johansen co-integration approach is utilized. The results of the study show that the co-integration exists among the variables of the model. The long run elasticities of the study reveal that money demand is positively and more elastic to investment expenditures, household expenditures and government expenditures respectively. It is less elastic to expenditures on exports and price level in Pakistan. Time trend plays a very significant role in determining the money demand in case of Pakistan. In the short run only one period lagged money demand, investment expenditures and prices are significantly elastic to demand for money. The results of the short run also show the convergence in the long run.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50977.

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Date of creation: 2012
Date of revision: 2013
Publication status: Published in World Applied Sciences Journal 6.24(2013): pp. 765-771
Handle: RePEc:pra:mprapa:50977

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Keywords: Money demand; M2; Pakistan; Expenditure;

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  1. Bahmani-Oskooee, Mohsen & Bohl, Martin T., 2000. "German monetary unification and the stability of the German M3 money demand function," Economics Letters, Elsevier, vol. 66(2), pages 203-208, February.
  2. Sharifi-Renani, Hosein, 2007. "Demand for money in Iran: An ARDL approach," MPRA Paper 8224, University Library of Munich, Germany.
  3. repec:ebl:ecbull:v:3:y:2002:i:4:p:1-8 is not listed on IDEAS
  4. Mohsen Bahmani-Oskooee & Michael P. Barry, 2000. "Stability of the Demand for Money in an Unstable Country: Russia," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(4), pages 619-629, July.
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  12. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
  13. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  14. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
  15. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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  17. Ahmed Khalid, 1999. "Modelling money demand in open economies: the case of selected Asian countries," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1129-1135.
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