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Monetary Targeting in Pakistan: A Skeptical Note

  • Saqib, Omar F
  • Omer, Muhamad

The objective of this study is to evaluate monetary targeting strategy in Pakistan by testing the Quantity Theory of Money and the income velocity of money stated by Monetarists and the endogenous money hypothesis postulated by the Post Keynesians. Our tests on the Pakistani data covering about thirty years reveal that the quantity theory is an inadequate explanation of inflation, income velocity of money is unstable, and money is endogenous. These results suggest rethinking on monetary targeting strategy in Pakistan.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14883.

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Date of creation: 05 Jun 2008
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Handle: RePEc:pra:mprapa:14883
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  3. Jonung, Lars, 1978. " The Long-run Demand for Money-A Wicksellian Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(2), pages 216-30.
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  6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  7. John R. Moroney, 2002. "Money Growth, Output Growth, and Inflation: Estimation of a Modern Quantity Theory," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 398-413, October.
  8. Michael D. Bordo & Lars Jonung, 1990. "The long-run behavior of velocity: the institutional approach revisited: introduction," Proceedings, Federal Reserve Bank of Cleveland, pages 165-204.
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  10. Cottrell, Allin, 1994. "Post-Keynesian Monetary Economics," Cambridge Journal of Economics, Oxford University Press, vol. 18(6), pages 587-605, December.
  11. Abbas, Kalbe & Fazal, Husain, 2006. "Money, Income and Prices in Pakistan: A Bi-variat and Tri-varate Causility," MPRA Paper 4892, University Library of Munich, Germany.
  12. Michael D. Bordo & Lars Jonung, 1989. "The Long-Run Behavior of Velocity: The Institutional Approach Revisited," NBER Working Papers 3204, National Bureau of Economic Research, Inc.
  13. Naved Ahmad & Fareed Ahmed, 2006. "The Long-run and Short-run Endogeneity of Money Supply in Pakistan: An Empirical Investigation," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 267-278..
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  16. repec:pid:journl:v:45:y:2006:i:2:p:213-220 is not listed on IDEAS
  17. Paul De Grauwe & Magdalena Polan, 2005. "Is Inflation Always and Everywhere a Monetary Phenomenon?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 239-259, 06.
  18. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
  19. Benjamin M. Friedman, 1988. "Lessons On Monetary Policy From The 1980's," NBER Working Papers 2551, National Bureau of Economic Research, Inc.
  20. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  21. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  22. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  23. International Monetary Fund, 2005. "Three Attempts at Inflation Forecasting in Pakistan," IMF Working Papers 05/105, International Monetary Fund.
  24. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
  25. Qayyum, Abdul, 2006. "Money, Inflation, and Growth in Pakistan," MPRA Paper 2055, University Library of Munich, Germany, revised 2006.
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