Exchange Rate Volatility and Money Demand: An Empirical Analysis of Pakistan

Muhammad Qasim, Khalil Ahmad and Muhammad Chani
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Muhammad Qasim: Ph.D. scholar at National College of Business Administration and Economics (NCBA&E), Lahore, Pakistan

Journal of Policy Research (JPR), 2021, vol. 7, issue 1, 15-25

Abstract: The main objective of this study is to investigate the impact of foreign exchange rate volatility on money demand in Pakistan. For this purpose disaggregate expenditure approach use to construct money demand function. For empirical estimation Autoregressive Distributed Lag (ARDL) approach is employed to investigate the co-integration among the money demand, exchange rate volatility, investment expenditure, consumption expenditure, government expenditure and inflation. The long run results show that household’s consumption expenditures, investment expenditure and inflation has positive and significant relationship with money demand in case of Pakistan. On the other hand, the long run results relating to government expenditures and exchange rate volatility show negative and significant impact on money demand.

Keywords: Exchange Rate volatility; Inflation; Money Demand (search for similar items in EconPapers)
JEL-codes: E30 E31 E41 (search for similar items in EconPapers)
Date: 2021
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