THE PAKISTAN DEVELOPMENT REVIEW
Determinants of Money Multipliers
In the present day world of fairly well-developed banking systems where money stock in an economy is jointly determined by the policies of .the Central Bank, the scheduled banks and the non-bank public, the determination of money stock is an important variable in the formulation of an appropriate monetary policy. In Pakistan however very, frequent and significant changes in money supply during the fiscal year suggest strong arbitrariness in the formulation and implementation of the monetary policy. There are various approaches to the process of money stock determination, one approach is through money multipliers. Changes in money multipliers reflect the portfolio decisions of the commercial banks, non-bank public and the monetary authority. Extensive developments in the theory and applied research in the formulation of money multipliers by Friedman and Schwartz (1960); Brunner and Meltzer (1964); Hosek (1970); Bomhoff (1977) and others have estimated money _ multipliers for the industrialised ecOnomies but with the exception of Hosek they treat the determinants of the money multipliers as exogenous and are taken as given. However the determinants of money multipliers depend on various interest rates and measures of economic activity which are not constant.