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http://hdl.handle.net/10419/43423
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| Title: | | Testing of money multiplier model for Pakistan: Does monetary base carry any information?  |
| Authors: | | Khan, Muhammad Arshad |
| Issue Date: | | 2010 |
| Series/Report no.: | | Economic analysis working papers 2010,2 |
| Abstract: | | 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. |
| Subjects: | | Money Multiplier Reserve Money Monetary Policy |
| JEL: | | E51 E52 E58 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Economic Analysis Working Papers: EAWP, Economists Association of La Coruña
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