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On the (Ir)Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View

  • Adnan Haider


    (Assistant Professor, Department of Economics and Finance, Institute of Business Administration (IBA), Karachi, Pakistan.)

  • Asad Jan


    (Economic Analyst, Monetary Policy Department, State Bank of Pakistan.)

  • Kalim Hyder


    (PhD Fellow, Department of Economics, University of Leicester, UK.)

This study attempts to identify a stable money demand function for Pakistan’s economy, where the monetary aggregate is considered the nominal anchor. With evolving financial innovations and regulations, the stability of money demand has been the focus of numerous debates. Where earlier studies have provided conflicting explanations due to inadequate specifications and imprecise estimations, we find that money demand in Pakistan is stable, if specified properly. For developing countries such as Pakistan, it is important to target monetary aggregates or respond to deviations from the desirable path if monetary policy is to be effectively implemented and communicated; this should remain, if not a primary, then an auxiliary target in the monetary policy framework.

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

Volume (Year): 18 (2013)
Issue (Month): 2 (July-Dec)
Pages: 65-119

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Handle: RePEc:lje:journl:v:18:y:2013:i:2:p:65-119
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