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SALU-Commerce & Economics Review

Niaz Hussain Ghumro PhD. (Corresponding Author)
Assistant Professor at Sukkur Institute of Business Administration Pakistan
Mohd Zaini Abd Karim
Ph.D Professor, Othman Yeop Abdullah Graduate School of Business, Universiti Utara Malaysia
Manzoor Ali Mirani, PhD.
Assistant Professor, Institute of Business Administration University, Sukkur,

This paper attempts to examine the stability of money demand function for Pakistan by including a new variable volatility of exchange rate. A time series annually data for the period 1972-2014 has been used in the estimation of money demand function, employing the ARDL Bounds Testing approach. The results show long-run cointegration among monetary aggregates (M1 and M2) and set of independent variables including exchange rate volatility. The paper further shows long-run effects of exchange rate volatility with only M2 and contributes in its stability rather than M1 in Pakistan. Thus real broad money supply should be considered as policy tool for formulating and implementing monetary policy.