On the (IR) Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View

Haider, Adnan and Jan, Asad and Hyder, Kalim (2012): On the (IR) Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View.

Abstract

This study investigates and searches for a stable money demand function for Pakistan’s economy, where monetary aggregate is considered as the nominal anchor. The stability of the money demand has been the focus of numerous debates due to evolving financial innovations and regulations. Earlier studies in Pakistan on the subject provide conflicting explanations due to inadequate specification and imprecise estimation of money demand. However, this study finds that money demand in Pakistan is stable, if specified properly. Therefore, for developing countries, like Pakistan, targeting of monetary aggregates or responding to deviations from the desirable path is important for effective implementation and communication of monetary policy stance and it should remain, if not primary, an auxiliary target in the monetary policy framework.

• Item Type: MPRA Paper
• Language: English
• Keywords: money demand, stability, monetarism
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C20 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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