THE PAKISTAN DEVELOPMENT REVIEW
The Demand for Money in Pakistan
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 commodities, and prices prior to 1958 and somewhat less restrictive policies in the remainder of the period under consideration.