The Money Market Stability: Exploring the Role of Uncertainty in Pakistan

Abstract

This study proposes an investigation into the relationship between money demand and economic uncertainty in Pakistan. This study extends the Keynes money demand function by including the optimal uncertainty index and analyzes the impact of uncertainty on the money demand. We employed annual data from 1990-2022 and ARDL for data analysis. We used money demand as the dependent variable, the world uncertainty index for Pakistan as a core explanatory variable, with other control variables. The empirical results indicate the existence of a long-run and direct relationship between uncertainty and money demand in Pakistan. The study also provides valuable implications for policymakers for a stable money market