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Monetary aggregates in Pakistan: theoretical and empirical underpinnings

  • Khan, Mahmood ul Hasan
  • Hussain, Fida

The objective of this study is to analyze theoretical as well as empirical soundness of the current monetary aggregates (M2) and to propose a broader monetary aggregate (M3), by exploring the functional characteristics and empirical relevance of financial assets. We used annual time series data from FY76 to FY03 and employed both the functional and empirical (F-M dual criteria) approaches. The results indicate that current monetary aggregates seemed to have been defined more on functional considerations compared to the empirical evidence. The analysis of new set of financial assets suggests that, while the various savings schemes individually as well as in aggregate were able to meet F-M dual criteria, deposits of NBFIs failed to satisfy this criteria. However, the functional considerations suggest that these deposits should, nevertheless, be included in a broader definition of monetary aggregates (M3).

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File URL: http://mpra.ub.uni-muenchen.de/31430/1/MPRA_paper_31430.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31430.

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Date of creation: Apr 2005
Date of revision: 2005
Handle: RePEc:pra:mprapa:31430
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  1. Milton Friedman & Anna Jacobson Schwartz, 1970. "Introduction to "Monetary Statistics of the United States: Estimates, Sources, Methods"," NBER Chapters, in: Monetary Statistics of the United States: Estimates, Sources, Methods, pages 1-85 National Bureau of Economic Research, Inc.
  2. Laumas, Gurcharan S, 1969. "Savings Deposits in the Definition of Money," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 892-96, Nov./Dec..
  3. Koot, Ronald S, 1975. "A Factor Analytic Approach to an Empirical Definition of Money," Journal of Finance, American Finance Association, vol. 30(4), pages 1081-89, September.
  4. Alfred Broaddus, 1975. "Aggregating the monetary aggregates : concepts and issues," Economic Review, Federal Reserve Bank of Richmond, issue Nov.
  5. Syed Muhammad Tariq & Kent Matthews, 1997. "The Demand for Simple-sum and Divisia Monetary Aggregates for Pakistan: A Cointegration Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(3), pages 275-291.
  6. Ewe-Ghee Lim & Subramanian S. Sriram, 2003. "Factors Underlying the Definition of Broad Money; An Examination of Recent U.S. Monetary Statistics and Practices of Other Countries," IMF Working Papers 03/62, International Monetary Fund.
  7. Moroney, John R & Wilbratte, Barry J, 1976. "Money and Money Substitutes: A Time Series Analysis of Household Portfolios," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(2), pages 181-98, May.
  8. NAJAM us SAQIB & ALlY A H. KHAN, 1988. "On an Empirical Definition of Money for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 27(4), pages 853-859.
  9. Laidler, David, 1969. "The Definition of Money: Theoretical and Empirical Problems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(3), pages 508-25, August.
  10. John R. Walter, 1989. "Monetary aggregates: a user's guide," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 20-28.
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