Modelling the Demand for Money in Pakistan

Qayyum, Abdul

doi:10.30541/v44i3pp.233-252

Cited by 18 publications

(20 citation statements)

References 52 publications

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“…Money demand causality Qayyum (2005) estimates the dynamic demand for money function in Pakistan. The results show that M2 has a long-run relationship with real income, the inflation rate, the call money rate and the government bond yield.…”

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confidence: 99%

Old wine in a new bottle: money demand causality for 10 Asian countries

Ajmi

Apergis

Montasser

2015

International Journal of Emerging Markets

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Purpose – The purpose of this paper is to estimate causality properties between real money demand and a number of determinants, i.e., real output, the lending rate and the real exchange rate, across ten Asian economies. Design/methodology/approach – The study makes use of the causality methodology of Emirmahmutoglu and Kose (2011) over the period 1990-2012. Findings – The results document both bidirectional and unidirectional causality between monetary aggregates (M1 and M2) and their determinants for different country groups. Research limitations/implications – The empirical findings exemplify the role of the demand for money as a policy tool and can provide useful policy guidelines to the Asian central banks in their quest for price stability. Originality/value – This paper for the first time estimates causality properties between real money demand and a number of determinants, across ten Asian economies that have not used before in the literature. In addition, it employs the innovative methodology of Emirmahmutoglu and Kose (2011). The advantages of this approach are: it overcomes the problem of pre-testing needs to determine the order of integration, the lag orders on the autoregressive coefficients as well as the exogenous variable coefficients are mixed for all the cross-section units of the sample, and it is based on the approach of Meta-analysis which is capable of obtaining common results, combining those provided by a number of independent studies which test the same hypothesis.

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confidence: 99%

Old wine in a new bottle: money demand causality for 10 Asian countries

Ajmi

Apergis

Montasser

2015

International Journal of Emerging Markets

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“…Most of the series in our analysis exhibit a linear trend in the level of the series. Therefore, we introduce intercept term unrestrictedly both in long run (cointegrating part) and short run (VAR) model while performing cointegration analysis [Johansen (1995); Harris, et al (2003) and Qayyum (2005)]. Table 3 presents the trace and maximum eigenvalue statistic after adjusting by factor (T-kl)/T to correct the small sample bias.…”

Section: Multivariate Cointegration Analysismentioning

confidence: 99%

Re-estimation of Keynesian Model by Considering Critical Events and Multiple Cointegrating Vectors

Hina¹,

Qayyum²

2022

pdr

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This study employs the Mundell (1963) and Fleming (1962) traditional flow model of exchange rate to examine the long run behaviour of rupee/US $ exchange rate for Pakistan economy over the period 1982:Q1 to 2010:Q2. This study investigates the effect of output levels, interest rates and prices and different shocks on exchange rate. Hylleberg, Engle, Granger, and Yoo (HEGY) (1990) unit root test confirms the presence of non-seasonal unit root and finds no evidence of biannual and annual frequency unit root in the level of series. Johansen and Juselious (1988, 1992) likelihood ratio test indicates three long-run cointegrating vectors. Cointegrating vectors are uniquely identified by imposing structural economic restrictions on purchasing power parity (PPP), uncovered interest parity (UIP) and current account balance. Finally, the short-run dynamic error correction model is estimated on the basis of identified cointegrated vectors. The speed of adjustment coefficient indicates that 17 percent of divergence from long-run equilibrium exchange rate path is being corrected in each quarter. US war with Afghanistan has significant impact on rupee in short run because of high inflows of US aid to Pakistan after 9/11. Finally, the parsimonious short run dynamic error correction model is able to beat the naïve random walk model at out of sample forecasting horizons. JEL Classification: F31, F37, F47 Keywords: Exchange Rate Determination, Keynesian Model, Cointegration, Out of Sample Forecasting, Random Walk Model

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“…8) indicates that money demand is proportional to income. It is evident that the estimates of the income elasticity of money demand (i.e., M1, M2 and currency) obtained for Pakistan tend to be around unity (Qayyum (1994), (2000), (2001) and (2005)). Therefore, the unitary scale (income) elasticity restriction is imposed which enables us to estimate the money demand function (m(i)) defined as the ratio of real money balances to real income with single argument defined as the opportunity cost of holding money.…”

Section: Double-log Money Demand Functionmentioning

confidence: 99%

“…Another study by Qayyum (2005) estimates the demand for broader monetary aggregate M2 at aggregate level for the annual data frm 1960 to 1999. This study reaches similar conclusion as Qayyum (2001) that the major determinants of money demand are own rate of return (call money rate) and opportunity cost variables (inflation rate and the Govt.…”

Section: Pakistan-specific Empirical Money Demand Studies: a Reviewmentioning

confidence: 99%

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On the Welfare Cost of Inflation: The Case of Pakistan

Mushtaq¹,

Rashid

Qayyum

2022

pdr

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In this paper, we quantify welfare costs of inflation for Pakistan for the period 1960-2007 using semi-log and double-log money demand functions. We find that the welfare gain of moving from positive inflation to zero inflation is approximately the same under both money demand specifications but the behaviour of the two models is fairly different towards low interest rates. Moving from zero inflation to zero nominal interest rate has a substantial gain under double-log form compared to the semi-log function. The compensating variation approach for the semi-log model gives higher welfare loss figures compared to Bailey’s approach. However, the two approaches yield approximately the same welfare cost of inflation for the double-log specification. Keywords: Monetary Policy, Inflation, Interest Rate, Welfare Costs, Money Demand Functions

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Modelling the Demand for Money in Pakistan

Cited by 18 publications

References 52 publications

Old wine in a new bottle: money demand causality for 10 Asian countries

Old wine in a new bottle: money demand causality for 10 Asian countries

Re-estimation of Keynesian Model by Considering Critical Events and Multiple Cointegrating Vectors

On the Welfare Cost of Inflation: The Case of Pakistan

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