Waliullah, Dr. Fazli Rabbi
The insights on the long run relationship amongst money, price level and the GDP are of significant importance for monetary policy formulation in a developing country like Pakistan. Taking into account the vital importance of these three variables, we empirically analyzed the long-run relationship amongst money, price level and GDP in the context of Pakistani economy. Time-series econometric techniques such as unit roots, ARDL and ECM are employed to quarterly data for the year 1972:1 to 2005: IV. ARDL has numerous advantages over the traditional approaches of causality and cointegration. Our results clearly suggest that there is a stable long run relationship amongst money supply (M1), GDP and the CPI in Pakistan. Radical changes in monetary policy in the past have significantly affected the movement of the macro economy in the country.
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