A reexamination of the stability of the demand for money in Pakistan

Econometrics can show the demand for money in the Pakistani economy from the period 1959-1960 and 1986-1987. The money demand function, specified in logarithmic form, was stable between both periods, but became unstable thereafter. The instability may have been caused by the institutional changes in the banking sector and changes in the exchange rate environment caused by the delinking of the Pakistani rupee from the US dollar. The demand for money may become stable again after the impact of these innovations is assimilated in the economy and the concept of money is broadened to include the specific needs of the Islamic banking system.