Testing of money multiplier model for Pakistan: Does monetary base carry any information?

Arbeitspapier

This paper tests the constancy and stationarity of mechanic version of the money multiplier model for Pakistan using monthly data over the period 1972M1-2009M2. We split the data into pre-liberalization (1972M1-1990M12) and post-liberalization (1991M1-2009M2) periods to examine the impact of financial sector reforms. We first examine the constancy and stationarity of the money multiplier and the results suggest the money multiplier remains non-stationary for the entire sample period and sub-periods. We then tested cointegration between money supply and monetary base and find the evidence of cointegration between two variables for the entire period and two sub-periods. The coefficient restrictions are satisfied only for the post-liberalization period. Two-way long-run causality between money supply and monetary base is found for the entire period and post-liberalization. For the post-liberalization period the evidence of short-run causality running from monetary base to money supply is also identified. On the whole, the results suggest that money multiplier model can serve as framework for conducting short-run monetary policy in Pakistan. However, the monetary authority may consider the co-movements between money supply and reserve money at the time of conducting monetary policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economic Analysis Working Papers ; No. 2010,2

Classification and Topics

• Classification: Wirtschaft ; Money Supply; Credit; Money Multipliers ; Monetary Policy ; Central Banks and Their Policies
• Subject: Money Multiplier ; Reserve Money ; Monetary Policy ; Geldschöpfung ; Pakistan

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Khan, Muhammad Arshad
• Event: Veröffentlichung
• (who): Colegio de Economistas de A Coruña
• (where): A Coruña
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/43423
• Last update: 10.03.2025, 11:43 AM CET