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The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Apporach

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  • Khan, Muhammad Arshad
  • Sajjid, Muhammad Zabir

Abstract

In this paper we investigate both the long and short run relationship between real money balances, real income, inflation rate,foreign interest rate and real effective exchange rate with reference to Pakistan over the period 1982Q2-2002Q4 using ARDL apporach which is a newly developed econometric technique. The estimate results indicate that in the long run real income,inflation rate, foreign interest rate and real effective exchane rate have a significant impact on real money balances in Pakistan. The dynamics of real money demand show that the effects of rate of inflation,foreign interest rate and the real effective exchange rate are much smaller in the short run than long run. the results also reveal that the demand for real money balances in Pakistan is stable, despite the economic reforms pursuede by the government since the late 1980s.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6752.

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Date of creation: Dec 2005
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Publication status: Published in The Lahore Journal of Economics 2.10(2005): pp. 87-99
Handle: RePEc:pra:mprapa:6752

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Keywords: Exchange rate; real money balances; ARDL;

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  1. Bahmani-Oskooee, Mohsen, 1996. "The black market exchange rate and demand for money in Iran," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 171-176.
  2. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
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  8. Mansor Ibrhim, 2001. "Financial Factors and the Empirical Behavior of Money Demand: A Case Study of Malaysia," International Economic Journal, Korean International Economic Association, vol. 15(3), pages 55-72.
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  12. Jun Nagayasu, 1998. "Japanese Effective Exchange Rates and Determinants-Prices, Real Interest Rates, and Actual and Optimal Current Accounts," IMF Working Papers 98/86, International Monetary Fund.
  13. repec:fth:inseep:9645 is not listed on IDEAS
  14. Samarjit Das & Kumarjit Mandal, 2000. "Modeling Money Demand in India: Testing Weak, Strong & Super Exogeneity," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 35(1), pages 1-19, January.
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Cited by:
  1. KHAN, Muhammad Arshad, 2008. "Long-Run And Short-Run Dynamics Of Foreign Exchange Reserves Flows And Domestic Credit In Pakistan," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(1), pages 61-78.

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