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Demand for Real Money Balances by the Business Sector: An Econometric Investigation

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  • Qayyum, Abdul

Abstract

The objective of this paper has been to estimate dynamic demand for money function for the business sector in Pakistan. It is found that the individual time series of the variables included in the money demand function are not stationary. They are integrated of order one. Further it is concluded that the one cointegration relationship between money demand and its determinants. The rate of inflation emerged as important determinant of real money balances demand by the business sector. In the long run business sector give no importance to the rate of interest while holding money.We have estimated dynamic stable money demand functions, which have remarkably good predictive power. In the short run rate of interest on saving deposit emerged an important determinant of money demand by the business sector. The previous money demand behaviour also plays an important role in the determination of current behaviour.

Suggested Citation

  • Qayyum, Abdul, 2000. "Demand for Real Money Balances by the Business Sector: An Econometric Investigation," MPRA Paper 2156, University Library of Munich, Germany, revised 2000.
  • Handle: RePEc:pra:mprapa:2156
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    References listed on IDEAS

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    5. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    6. Wilbratte, Barry J, 1975. "Some Essential Differences in the Demand for Money by Households and by Firms," Journal of Finance, American Finance Association, vol. 30(4), pages 1091-1099, September.
    7. Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier.
    8. 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.
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    10. Ungar, Meyer & Zilberfarb, Benzion, 1980. " The Demand for Money by Firms: The Stability and Other Issues Reexamined," Journal of Finance, American Finance Association, vol. 35(3), pages 779-785, June.
    11. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    13. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
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    15. Qayyum, Abdul, 1999. "Demand for Money By Business Sector in a Developing Country: Evidence from Pakistan," MPRA Paper 2583, University Library of Munich, Germany, revised 0199.
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    Cited by:

    1. Siffat Mushtaq & Abdul Rashid & Abdul Qayyum, 2012. "On the Welfare Cost of Inflation: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(1), pages 61-96.
    2. Muhammad Arshad Khan & Muhammad Zabir Sajjid, 2005. "The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Approach," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 10(2), pages 87-99, Jul-Dec.

    More about this item

    Keywords

    Money demand; business sector; Unit root; Cointegration; Pakistan;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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