The Demand for Money in Pakistan

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Abstract
It is the purpose of this paper to present an empirical analysis of the demand function for money in Pakistan. Our empirical investigation is restricted to the period 1951-70. During this period (a) nominal income rose at an average yearly rate of 7.0 per cent; (b) nominal stock of money averaged a yearly increase of 7.9 or 9.7 per cent depending on whether money is defined exclusive or inclusive of time deposits, respectively; (c) the average rise in real income was 4.0 per cent but it fluctuated substantially from one year to another; (d) the yieid on long-term government bonds increased about 2.9 per cent per year but the short-term interest rate (call money rate) advanced more than 7.1 per cent; (e) prices were relatively stable and by any measure, averaged a yearly increase of less than 4.0 per cent. To complete this outline we should mention that the institutional setup affecting these economic variables included a wide variety of controls on imports, exports, distribution of commodi¬ties, and prices prior to 1958 and somewhat less restrictive policies in the remainder of the period under consideration.

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