The Long-run and Short-run Endogeneity of Money Supply in Pakistan: An Empirical Investigation

Naved Ahmad and Fareed Ahmed
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Fareed Ahmed: Applied Economic Research Center, Karachi University

SBP Research Bulletin, 2006, vol. 2, 267-278.

Abstract: Using Standard Granger Causality test, this study demonstrates that Pakistan’s money supply for the period 1980–2003 is not exogenously determined in the short run. Empirical results support the Structuralists’ view as well as the Liquidity Preference view on money endogeneity. However, it also provides partial support to the Accommodationists’ view of money endogeneity. Nevertheless, in the long run—a time span exceeding twenty-four months—it is the base money that determines the total bank advances. Hence, the central bank has considerable influence on money supply in the long run.

Date: 2006
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