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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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
6752.
Length: Date of creation: Dec 2005 Date of revision: Publication status: Published in The Lahore Journal of Economics 2.10(2005): pp. 87-99 Handle: RePEc:pra:mprapa:6752
Find related papers by JEL classification: F30 - International Economics - - International Finance - - - General C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
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