Open AccessMoney Demand Balances and Exchange Rate Policy in Pakistan: An ARDL and Non-ARDL Analysis
Author(s) -
Shazia Sana,
Shahnawaz Malik,
Muhammad Ramzan Sheikh,
Muhammad Hanif Akhtar
Publication year - 2020
Publication title -
journal of business and social review in emerging economies
Language(s) - English
Resource type - Journals
eISSN - 2519-089X
pISSN - 2519-0326
DOI - 10.26710/jbsee.v6i4.1449
Subject(s) - economics , demand for money , demand curve , broad money , exchange rate , monetary economics , speculative demand , demand shock , demand deposit , econometrics , monetary policy , microeconomics
This paper investigates the impact of exchange rate on the money demand balances in Pakistan by applying linear and non-linear ARDL approach. The purpose of study is not only examining the impact of exchange rate and demand for money but also to analyze that whether demand for money in Pakistan is stable or not. For the estimation of money demand function yearly data are used from the 1972 to 2019. The findings of linear ARDL suggest that exchange rate and demand for money balances are positively related. Moreover, Non-linear ARDL exhibit that positive and negative shocks in exchange rate have mixed findings for money demand while asymmetric test shows that exchange rate has symmetric effects for money demand. Stability test suggest the stable money demand in Pakistan.