Short Run Forecasts of the Money Stock in Pakistan

I. U. Mangla, Mark Ladenson


Until recently it was conventional to treat the money stock as
a policy variable exogenously determined by the central bank of a
country. However, the notion that the money stock is jointly determined
by the central bank, the commercial banks, and the nonbank public has
gained general acceptance among economists. Thus regarded as an
endogenous variable, the problem of choosing that model of money stock
determination which provides the best predictions of its values in the
immediate future assumes importance. It is the purpose of this paper,
then, to formulate alternative models of the Pakistani money stock
process and determine which of them yields the best short-run
predictions. The existing models are of two basic types: money
multiplier models of various degrees of sophistication, in which the
money stock is obtained as the product of a stock of base money and an
appropriate multiplier; and an empirical money supply equation used by
Gibson [9]. These are discussed in first section of the

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