Monetary Aggregates in Pakistan: Theoretical and Empirical Underpinnings

Mahmood ul Hasan Khan () and Fida Hussain ()
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Fida Hussain: State Bank of Pakistan

No 7, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: The objective of this study is to analyze theoretical as well as empirical soundness of the current monetary aggregates (M2) and to propose a broader monetary aggregate (M3), by exploring the functional characteristics and empirical relevance of financial assets. We used annual time series data from FY76 to FY03 and employed both the functional and empirical (F-M dual criteria) approaches. The results indicate that current monetary aggregates seemed to have been defined more on functional considerations compared to the empirical evidence. The analysis of new set of financial assets suggests that, while the various savings schemes individually as well as in aggregate were able to meet F-M dual criteria, deposits of NBFIs failed to satisfy this criteria. However, the functional considerations suggest that these deposits should, nevertheless, be included in a broader definition of monetary aggregates (M3).

Keywords: Money supply; M2; M3; deposits; financial assets. (search for similar items in EconPapers)
JEL-codes: E50 E51 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-04
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Working Paper: Monetary aggregates in Pakistan: theoretical and empirical underpinnings (2005)
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