The Demand for Money and the Term Structure of Interest Rates in Pakistan

Abstract

Using the term structure of interest rates, and treating measured income as a scale variable, the paper analyses the demand for money in Pakistan. It is found that replacement of simple average interest rate by the term structure of time deposit rates improves the estimates of money demand function. Money demand is found to be sensitive to changes in interest rates and income level. Furthermore, diseconomies of scale are observed in money holdings.