Financial Liberalization And Demand For Money: A Case of Pakistan
Rana Khan () and
Qazi Muhammad Adnan Hye
MPRA Paper from University Library of Munich, Germany
Abstract:
Literature in economics has identified many channels through which the financial liberalization may affect demand for money. There are evidences of stability as well as instability of demand for money due to financial development for developing economies. The objective of the current study is to examine the effect of financial liberalization on demand for money in Pakistan, i.e. whether financial liberalization has affected the demand for money or not. The issue is important as stable demand for money function is a prerequisite for formulating and operating monetary policy. To achieve the objective JJ cointegration and auto regressive distributed lag (ARDL) to the cointegration is employed to estimate the long-run equilibrium relationship between broad money M2 and composite financial liberalization index along with other determinants of demand for money like gross domestic product, real deposit rate and exchange rate. In order to assess the stability of the model, the parameter constancy tests, i.e. recursive residuals, CUSUM and CUSUMSQ tests have been applied. The empirical results indicated that for broad money, there exists long-run money demand function. The financial liberalization, gross domestic product and real deposit rate positively affect the demand for money in the long as well as short-run.
Keywords: Demand for money; Financial liberalization; Real deposit rate; Financial reforms; Pakistan; ARDL (search for similar items in EconPapers)
JEL-codes: E41 E52 E58 F31 O53 (search for similar items in EconPapers)
Date: 2011-03-01
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/34795/1/MPRA_paper_34795.pdf original version (application/pdf)
Related works:
Journal Article: Financial liberalization and demand for money: a case of Pakistan (2013) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:34795
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().