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Currency Substitution, Capital Mobility and Functional Forms of Money Demand in Pakistan

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  • Yu Hsing

    (Charles Blackwell Endowed Professor of Economics, Department of General Business, SLU 10813, College of Business, Southeastern Louisiana University, Hammond, Louisiana 70402, USA.)

Abstract

The demand for M2 in Pakistan ispositively influenced by real GDP and currency appreciation and negatively influenced by the domestic interest rate and the foreign interest rate. These results confirm international capital mobility and currency substitution. The Box-Cox transformation indicates that the log-linear function cannot be rejected while the linear function can be rejected at the 5% significance level. The log-linear form of the demand for M2 shows a small value of the mean absolute percent error and performs better in the CUSUM and CUSUMSQ tests than the linear form.

Suggested Citation

  • Yu Hsing, 2007. "Currency Substitution, Capital Mobility and Functional Forms of Money Demand in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(1), pages 35-48, Jan-Jun.
    • Handle: RePEc:lje:journl:v:12:y:2007:i:1:p:35-48
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    Cited by:

    1. Rana Ejaz Ali Khan & Qazi Muhammad Adnan Hye, 2013. "Financial liberalization and demand for money: a case of Pakistan," Journal of Developing Areas, Tennessee State University, College of Business, vol. 47(2), pages 175-198, July-Dece.
    2. Darío Debowicz & Wajiha Saeed, 2014. "Exchange rate misalignment and economic development: the case of Pakistan," Global Development Institute Working Paper Series 21014, GDI, The University of Manchester.

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    More about this item

    Keywords

    Currency substitution; capital mobility; Box-Cox model; CUSUM and CUSUMSQ tests;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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