The Controllability of Monetary Aggregates in Pakistan

Anjum Siddiqui and Ahmad Waheed
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Ahmad Waheed: Applied Economics Research Centre, University of Karachi.

The Pakistan Development Review, 1995, vol. 34, issue 4, 659-669

Abstract: The introduction of new financial instruments and the consequent asset substitutability since the advent of financial deregulation in 1991 has been accompanied by volatility of the money multiplier and the monetary aggregates. While money demand studies exist [Khan (1980)), the modelling of the supply side of money and, in general, the impact of financial innovations on money multipliers and monetary aggregates has been largely ignored. In a recent study, Siddiqui and Waheed (1994a) found that during 1992-93 the narrow money multiplier fell and increased sharply, causing instability in M1. It was also observed that the broad money multiplier showed similar instability during the same period. While financial innovations have been reflected in multiplier instability, inflation and monetary aggregates have also shown an upward trend. Since 1988-89 monetary assets (M2) have registered an increase of 137 percent with an accompanying inflation increase of 60 percent on average. This makes a strong case for controlling the growth of monetary assets in Pakistan.

Date: 1995
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