Financial Innovation and Demand for Money in Pakistan

Abstract

This paper investigates the relationship between money demand and financial innovation in Pakistan during the period of 1995-1 to 2007-12 using the robust time series techniques. Empirical results suggest that there exist long run relationship between money demand, interest rate, economic activity, inflation, financial innovation and exchange rate. The important result of this empirical work is that financial innovation is positively effecting money demand in the long run as well as in the short run but short run elasticity is more than the long run elasticity.

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