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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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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp07.pdf
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    References listed on IDEAS

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    1. Laidler, David, 1969. "The Definition of Money: Theoretical and Empirical Problems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(3), pages 508-525, August.
    2. Chetty, V Karuppan, 1969. "On Measuring the Nearness of the Near-Moneys," American Economic Review, American Economic Association, vol. 59(3), pages 270-281, June.
    3. 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 181-198, May.
    4. 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.
    5. Laumas, Gurcharan S, 1969. "Savings Deposits in the Definition of Money," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 892-896, Nov./Dec..
    6. 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.
    7. 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.
    8. Alfred Broaddus, 1975. "Aggregating the monetary aggregates : concepts and issues," Economic Review, Federal Reserve Bank of Richmond, issue Nov.
    9. John R. Walter, 1989. "Monetary aggregates: a user's guide," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 20-28.
    10. 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.
    11. Koot, Ronald S, 1975. "A Factor Analytic Approach to an Empirical Definition of Money," Journal of Finance, American Finance Association, vol. 30(4), pages 1081-1089, September.
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Money supply; M2; M3; deposits; financial assets.;

    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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