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Monetary Aggregates in Pakistan: Theoretical and Empirical Underpinnings

Author

Listed:
  • Mahmood ul Hasan Khan

    (State Bank of Pakistan)

  • Fida Hussain

    (State Bank of Pakistan)

Abstract

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).

Suggested Citation

  • Mahmood ul Hasan Khan & Fida Hussain, 2005. "Monetary Aggregates in Pakistan: Theoretical and Empirical Underpinnings," SBP Working Paper Series 07, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:07
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    References listed on IDEAS

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    2. Khan, Rana Ejaz Ali & Gill, Abid Rashid, 2007. "Impact of Supply of Money on Food and General Price Indices: A Case of Pakistan," MPRA Paper 16293, University Library of Munich, Germany.

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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