An Empirical Investigation of the Quantity Theory of Money in Pakistan

Faisal Kamal, Ihtisham ul Haq, Dilawar Khan and Hameed Gul
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Faisal Kamal: Department of Economics, Kohat University of Science and Technology, Kohat, Pakistan
Ihtisham ul Haq: Department of Economics, Kohat University of Science and Technology, Kohat, Pakistan
Dilawar Khan: Department of Economics, Kohat University of Science and Technology, Kohat, Pakistan
Hameed Gul: Department of Economics, Kohat University of Science and Technology, Kohat, Pakistan

Bulletin of Business and Economics (BBE), 2023, vol. 12, issue 4, 610-615

Abstract: One of the macroeconomic objective is to have price stability. The quantity theory of money (QTM) explains the nexus between money supply and price level in the economy thus QTM provides the theoretical framework for monetary policy to bring price stability. Therfore this study investigates the validity of QTM in Pakistan in time series study. This study applied different econometric techniques unit root tests cointegration test and fully modified ordinary least square (FMOLS) cointegration regression. The variables money supply price level interest rate and output are cointegrated in the long run. The results of the FMOLS regression indicate positive and significant effect of money supply on price level henceforth; this study validate the QTM in Pakistan. The study suggests that monetary policy can effectively control the price level in the economy to maintain economic stability and sustain economic growth.

Keywords: money supply; price level; interest rate; output (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:rfh:bbejor:v:12:y:2023:i:4:p:610-615

DOI: 10.61506/01.00182

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