Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization

Understanding the demand for money in an economy is an important prerequisite for formulating and conducting monetary policy. Several macroeconomic variables influence the money demand. Pakistan has undergone significant changes in the macroeconomic landscape over the years such as exchange rate cha...

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Main Author:	Ghumro, Niaz Hussain
Format:	Thesis
Language:	eng eng
Published:	2016
Subjects:	HG Finance
Online Access:	https://etd.uum.edu.my/6334/1/s94972_01.pdf https://etd.uum.edu.my/6334/2/s94972_02.pdf
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id	my-uum-etd.6334
record_format	uketd_dc
institution	Universiti Utara Malaysia
collection	UUM ETD
language	eng eng
advisor	Abd Karim, Mohd Zaini
topic	HG Finance
spellingShingle	HG Finance Ghumro, Niaz Hussain Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization
description	Understanding the demand for money in an economy is an important prerequisite for formulating and conducting monetary policy. Several macroeconomic variables influence the money demand. Pakistan has undergone significant changes in the macroeconomic landscape over the years such as exchange rate changes with its volatility, remittances, and financial liberalization. Such changes in the economy might have caused shifts in the parameters of the money demand function over time, making the function unreliable for policy decisions. It is therefore necessary to investigate money demand function in the Pakistan, including exchange rate with its volatility, remittances, and financial liberalization in order to capture their long-run and short-run effects. Using Autoregressive Distributed Lag (ARDL) Bounds Testing Approach, this study sought to examine the relationship between demand for money and exchange rate with its volatility, remittances and the pace of financial liberalization in Pakistan using data from 1972 to 2014. Empirical results of the study reveal that exchange rate and its volatility support the wealth effect hypothesis, and uncertainty in the exchange rate drives more holding of the domestic currency. The positive and inelastic coefficient of remittances show the increasing patterns of consumption among the households and revealing inefficiency of regular channels of remittances in Pakistan. Financial liberalization increases money demand and its small coefficient reveals that the pace of financial liberalization is still growing. Finally, this thesis examines the stability of both models for policy implementation. The results reveal that only model for real narrow money demand is stable. Thus, the policy makers should consider real narrow money demand as a policy tool in Pakistan
format	Thesis
qualification_name	Ph.D.
qualification_level	Doctorate
author	Ghumro, Niaz Hussain
author_facet	Ghumro, Niaz Hussain
author_sort	Ghumro, Niaz Hussain
title	Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization
title_short	Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization
title_full	Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization
title_fullStr	Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization
title_full_unstemmed	Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization
title_sort	stability of money demand in pakistan: the impact of exchange rate, remittances, and financial liberalization
granting_institution	Universiti Utara Malaysia
granting_department	Othman Yeop Abdullah Graduate School of Business
publishDate	2016
url	https://etd.uum.edu.my/6334/1/s94972_01.pdf https://etd.uum.edu.my/6334/2/s94972_02.pdf
_version_	1747828060539846656
spelling	my-uum-etd.63342021-04-05T02:22:07Z Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization 2016 Ghumro, Niaz Hussain Abd Karim, Mohd Zaini Othman Yeop Abdullah Graduate School of Business Othman Yeop Abdullah Graduate School of Business HG Finance Understanding the demand for money in an economy is an important prerequisite for formulating and conducting monetary policy. Several macroeconomic variables influence the money demand. Pakistan has undergone significant changes in the macroeconomic landscape over the years such as exchange rate changes with its volatility, remittances, and financial liberalization. Such changes in the economy might have caused shifts in the parameters of the money demand function over time, making the function unreliable for policy decisions. It is therefore necessary to investigate money demand function in the Pakistan, including exchange rate with its volatility, remittances, and financial liberalization in order to capture their long-run and short-run effects. Using Autoregressive Distributed Lag (ARDL) Bounds Testing Approach, this study sought to examine the relationship between demand for money and exchange rate with its volatility, remittances and the pace of financial liberalization in Pakistan using data from 1972 to 2014. Empirical results of the study reveal that exchange rate and its volatility support the wealth effect hypothesis, and uncertainty in the exchange rate drives more holding of the domestic currency. The positive and inelastic coefficient of remittances show the increasing patterns of consumption among the households and revealing inefficiency of regular channels of remittances in Pakistan. Financial liberalization increases money demand and its small coefficient reveals that the pace of financial liberalization is still growing. Finally, this thesis examines the stability of both models for policy implementation. The results reveal that only model for real narrow money demand is stable. Thus, the policy makers should consider real narrow money demand as a policy tool in Pakistan 2016 Thesis https://etd.uum.edu.my/6334/ https://etd.uum.edu.my/6334/1/s94972_01.pdf text eng public https://etd.uum.edu.my/6334/2/s94972_02.pdf text eng public Ph.D. doctoral Universiti Utara Malaysia Abdullah, H., Ali, J., & Matahir, H. (2010). Re-examining the demand for money in ASEAN-5 countries. Asian Social Science, 6(7), 146-155. Abdul-Mumuni, A., & Quaidoo, C. (2016). Effect of international remittances on inflation in Ghana using the Bounds Testing Approach. Business and Economic Research, 6(1), 192-209. Achsani, N. A. (2010). 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Stability of money demand in Pakistan: the impact of exchange rate, remittances, and financial liberalization

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