The study explores determinants of money demand (M2) in a developing economy of Pakistan using annual data ranging 1976–2017. The study contributes by two ways. Firstly, it specifically examines the potential impact of exchange rate volatility and inflation uncertainty along with conventional determinants on money demand in Pakistan. Secondly, Bayesian Statistical inference is employed and the estimates are interpreted along with highest posterior density intervals (HPDI) with probability statements in order to cope with the issue of the instability of parameters. The analysis explores the positive impact of real income as well as share prices and the negative effect of interest rate on money demand as predicted by theory and earlier findings. Significant negative estimate of exchange rate shows that substitution effect overcomes wealth effect during exchange rate variations. But magnitude of exchange rate elasticity seems to depend upon strength of depreciation rate and/or future expectations, which may be considered an important research question for future work. Insignificance of exchange rate volatility for money demand in Pakistan is found which requires further research as to know about the behaviour of wealth effect and expectation effect during forex market uncertainty. Most importantly, inflation uncertainty is found to be a potential determinant of money demand in Pakistan. Rising uncertainty of inflation rate seems to have direct effects on precautionary and transaction motives of the demand for money. Findings of this study provides useful insights for policymaking in Pakistan as well as in other developing economies by suggesting inflation uncertainty as the potential determinant of money demand. Finally, Bayesian estimates along with HPDI estimates provide new information about the effects and particularly about the possible range of elasticities.

中文翻译：

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通货膨胀不确定性和汇率波动对巴基斯坦货币需求的影响：贝叶斯计量经济学分析

该研究使用 1976 年至 2017 年的年度数据，探讨了巴基斯坦发展中经济体货币需求 (M2) 的决定因素。这项研究有两个方面的贡献。首先，它专门研究了汇率波动和通货膨胀不确定性以及传统决定因素对巴基斯坦货币需求的潜在影响。其次，采用贝叶斯统计推断，并将估计值与最高后验密度区间（HPDI）一起用概率陈述来解释，以应对参数不稳定性的问题。该分析探讨了实际收入和股价的积极影响以及利率对货币需求的负面影响，如理论和早期研究结果所预测的那样。汇率的显着负估计表明，在汇率变动过程中，替代效应战胜了财富效应。但汇率弹性的大小似乎取决于贬值率的强度和/或未来的预期，这可能被认为是未来工作的一个重要研究问题。发现汇率波动对巴基斯坦货币需求的影响不大，这需要进一步研究以了解外汇市场不确定性期间财富效应和预期效应的行为。最重要的是，通货膨胀的不确定性被发现是巴基斯坦货币需求的潜在决定因素。通胀率的不确定性上升似乎对货币需求的预防和交易动机有直接影响。这项研究的结果表明通货膨胀的不确定性是货币需求的潜在决定因素，从而为巴基斯坦和其他发展中经济体的决策提供了有用的见解。最后，贝叶斯估计和 HPDI 估计提供了关于影响的新信息，特别是关于可能的弹性范围的信息。