Abstract:
The demand for M2 in Pakistan is positively influenced by real
GDP and currency appreciation and negatively influenced by the domestic
interest rate and the foreign interest rate. These results confirm
international capital mobility and currency substitution. The Box-Cox
transformation indicates that the log-linear function cannot be rejected
while the linear function can be rejected at the 5% significance level. The
log-linear form of the demand for M2 shows a small value of the mean
absolute percent error and performs better in the CUSUM and CUSUMSQ
tests than the linear form.
