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Currency Substitution, Capital Mobility and Functional Forms of Money Demand in Pakistan

  • Yu Hsing

    ()

    (Charles Blackwell Endowed Professor of Economics, Department of General Business, SLU 10813, College of Business, Southeastern Louisiana University, Hammond, Louisiana 70402, USA.)

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    The demand for M2 in Pakistan ispositively influenced by real GDP and currency appreciation and negatively influenced by the domestic interest rate and the foreign interest rate. These results confirm international capital mobility and currency substitution. The Box-Cox transformation indicates that the log-linear function cannot be rejected while the linear function can be rejected at the 5% significance level. The log-linear form of the demand for M2 shows a small value of the mean absolute percent error and performs better in the CUSUM and CUSUMSQ tests than the linear form.

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    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 12 (2007)
    Issue (Month): 1 (Jan-Jun)
    Pages: 35-48

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    Handle: RePEc:lje:journl:v:12:y:2007:i:1:p:35-48
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