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The effects of exchange Rate on Money demand: Evidence from Pakistan

Author Affiliations

  • 1Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia Working as Assistant Professor at Sukkur IBA Pakistan

Int. Res. J. Social Sci., Volume 5, Issue (4), Pages 11-20, April,14 (2016)

Abstract

The patterns of exchange rate in Pakistan against US. Dollar, following upward trend, affect all the markets in an economy. The households ‘purchasing power parity is affected by the effects of exchange rate. This paper examines the long-run and short-run effects of exchange rate on the real broad money demand using times series data from 1972 to 2914 in the case of Pakistan. The Autoregressive distributed lag (ARDL) bounds approach has been employed for achieving the short-run and long-run effects. The result reveals that exchange rate has positive effects in the both long run and short-run. Further, it is found that exchange rate contributes to the stability of model. The results recommend the broad money as a tool for controlling monetary policy in Pakistan.

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