IS DEMAND FOR MONEY STABLE IN PAKISTAN?

The effectiveness of monetary policy for overcoming economic fluctuations is the main objective of the policy makers and it calls for clear knowledge regarding what factors affect the demand for money. The present study is an attempt to analyze the long-run relationship between demand for money, real income, inflation rate and exchange rate using ARDL approach. The results of the study reveal that M2 monetary aggregate is cointegrated with its determinants and its long-run relationship with its determinants appears to be stable. The study suggests that monetary authorities and policy makers should focus only on long-run stabilization policy in Pakistan.