THE PAKISTAN DEVELOPMENT REVIEW
Predicting Money Multiplier in Pakistan
The paper has developed time-series models for the monthly money multiplier and its components, viz., currency-deposit ratio, reserve-deposit ratio, etc. A comparison is made between the predictive performance of the aggregate multiplier and the component models. It is found that the projected values of the multiplier on the basis of the aggregate model are closer to actual values as compared to those worked out on the basis of the component models. Thus, for the purposes of projecting the money multiplier, it may be preferable to focus on the aggregate money multiplier model. Stability tests, applied to the identified models for each component and the overall multiplier, suggest that all the models are stable.