Predicting Money Multiplier in Pakistan

M Farooq Arby

Abstract


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.

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DOI: https://doi.org/10.30541/v39i1pp.23-35

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