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Prices, Money Supply and Output Nexus in Pakistan – A Macro Econometric Model

Author

Listed:
  • Asma Awan

    (University of the Punjab, Lahore , Pakistan.)

  • Hafiz Khalil Ahmad

    (GC Women University, Sialkot, Pakistan.)

  • Altaf Hussain

    (The Islamia University of Bahawalpur, Pakistan.)

  • Muhammad Yousuf Khan Marri

    (PARC National Agricultural Research Centre Park Road, Islamabad, Pakistan.)

Abstract

This study is an endeavor to examine joint determination of prices, money supply and output in Pakistan during 1975-2019 by using macro-economic model and annual time series data. Three Stage Least Square (3SLS) method is utilized to estimate simultaneous model of prices, money supply and output nexus. Our results strongly support significant positive association between prices and money supply thus supports monetarist view that growth in money supply causes inflation and rising behavior of prices is detrimental to real output. The accelerated inflation has obstructed real output and reduced output levels has further caused jump in price levels during the investigated period. The empirical results also supports significant bi-directional relationship between prices and money supply. Prudent monetary policy is need of hour to stabilize prices in order to minimize its adverse impacts on real output.

Suggested Citation

  • Asma Awan & Hafiz Khalil Ahmad & Altaf Hussain & Muhammad Yousuf Khan Marri, 2021. "Prices, Money Supply and Output Nexus in Pakistan – A Macro Econometric Model," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 3(2), pages 38-77, September.
    • Handle: RePEc:ani:irdjoe:v:3:y:2021:i:2:p:106-118
    DOI: https://doi.org/10.52131/joe.2021.0302.0029
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    References listed on IDEAS

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    More about this item

    Keywords

    Prices; Money Supply; Output; Simultaneous Model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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