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2016•Unpublished venueRequires access

Pakistan Economic and Social Review AN ANALYSIS OF MONEY DEMAND IN PAKISTAN

Eatzaz Ahmad, Muhammad Munirs

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Abstract

This study re-examines the nature of money demand in Pakistan, using 1972 to 1996 quarterly data. The results indicate that it is the inflation rate rather than interest rate that could paged in order to stabilize money demand. This conclusion is reinforced by the observation that with the changed composition of money following the financial reforms in 1990s has made money demand most sensitive to inflation rate. The results also show that money demand is authority in adjusting high powered money to track money market equilibrium. The study also concludes that in the short-run money demand is not too sensitive to shocks and in order to make the realize outcomes consistent with the targets, the monetary authority need to take the speed of adjustment in money demand into account.

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What this paper is about

This study re-examines the nature of money demand in Pakistan, using 1972 to 1996 quarterly data. The results indicate that it is the inflation rate rather than interest rate that could paged in order to stabilize money demand. This conclusion is reinforced by the observation that with the changed composition of money following the financial reforms in 1990s has made money demand most sensitive to inflation rate. The results also show that money demand is authority in adjusting high powered money to track money market equilibrium. The study also concludes that in the short-run money demand is not too sensitive to shocks and in order to make the realize outcomes consistent with the targets, the monetary authority need to take the speed of adjustment in money demand into account.

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Available abstract

This study re-examines the nature of money demand in Pakistan, using 1972 to 1996 quarterly data. The results indicate that it is the inflation rate rather than interest rate that could paged in order to stabilize money demand. This conclusion is reinforced by the observation that with the changed composition of money following the financial reforms in 1990s has made money demand most sensitive to inflation rate. The results also show that money demand is authority in adjusting high powered money to track money market equilibrium. The study also concludes that in the short-run money demand is not too sensitive to shocks and in order to make the realize outcomes consistent with the targets, the monetary authority need to take the speed of adjustment in money demand into account.

Key concepts: Demand for money, Economics, Demand deposit, Monetary economics, Endogenous money, Speculative demand, Inflation (cosmology), Broad money

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