Demand for Real Money Balances by the Business Sector: An Econometric Investigation

Abdul Qayyum


Monetary economics provides one of the important tools, that
is monetary policy, to deal with the macroeconomic problems of the
economy. It is concerned with the supply of money and the demand for
money. It is often assumed that the money supply is exogenously
determined by the authorities and the demand for real money is
determined by the market. The demand for money is of crucial importance
in the conduct of monetary policy. It helps to understand macroeconomic
activities and to prescribe appropriate policy instruments to deal with
macroeconomic problems. The effectiveness of the monetary policy,
however, depends on the shape and stability of the estimated demand for
money function.

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