Author
Tahir MUKHTAR*, Saira TUFAIL** and Zainab JEHAN***
Abstract
The current investigation seeks to estimate the demand for money response to economic and monetary sources of uncertainty in Pakistan during the period 1980 to 2019. By distinguishing economic uncertainty from monetary uncertainty, the analysis moves beyond the conventional practice of representing uncertainty with a single aggregate indicator. The estimation is performed employing the Nonlinear Autoregressive Distributed Lag (NARDL) technique. The empirical results support the existence of a stable long-run relationship between demand for real money balances, its traditional determinants and the two measures of uncertainty. The findings also reveal that demand for money is influenced by both types of uncertainty through distinct channels. Moreover, the null hypothesis of symmetry is rejected under the Wald test, suggesting asymmetric short-run and long-run impacts of both dimensions of uncertainty on the demand for money. The analysis provides valuable policy lessons on the demand for money behaviour and the importance of both the source and the asymmetry of uncertainty shocks in evaluating money-holding behaviour.
