Post by Sapphire Capital on Jul 25, 2008 3:57:03 GMT 4
Monetary Targeting in Pakistan: A Skeptical Note
Muhammad Omer
Analyst
Economic Analysis Department
State Bank of Pakistan
muhammad.omer@sbp.org.pk
Omar Farooq Saqib
Senior Economist
Research Department
State Bank of Pakistan
omar.farooq@sbp.org.pk
Abstract
The objective of this study is to evaluate monetary targeting strategy in Pakistan by testing the
Quantity Theory of Money and the income velocity of money stated by Monetarists and the
endogenous money hypothesis postulated by the Post Keynesians. Our tests on the Pakistani data
covering about thirty years reveal that the quantity theory is an inadequate explanation of
inflation, income velocity of money is unstable, and money is endogenous. These results suggest
rethinking on monetary targeting strategy in Pakistan.
www.sbp.org.pk/publications/wpapers/2008/wp25.pdf
Muhammad Omer
Analyst
Economic Analysis Department
State Bank of Pakistan
muhammad.omer@sbp.org.pk
Omar Farooq Saqib
Senior Economist
Research Department
State Bank of Pakistan
omar.farooq@sbp.org.pk
Abstract
The objective of this study is to evaluate monetary targeting strategy in Pakistan by testing the
Quantity Theory of Money and the income velocity of money stated by Monetarists and the
endogenous money hypothesis postulated by the Post Keynesians. Our tests on the Pakistani data
covering about thirty years reveal that the quantity theory is an inadequate explanation of
inflation, income velocity of money is unstable, and money is endogenous. These results suggest
rethinking on monetary targeting strategy in Pakistan.
www.sbp.org.pk/publications/wpapers/2008/wp25.pdf