Monetary Economics

Assignment 1

MONETARY ECONOMICS ASSIGNMENT 1

Submitted as a group: Talha Nadeem, M. Ali Raza, Sana Ahmed, M. Jibran Changi
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Definitions:
M1: Also known as Narrow Money, it is an indicator used to measure money supply in the economy and
includes currency in circulation, highly liquid financial assets (like checkable deposits, travelers checks
etc.) other deposits with State Bank of Pakistan and demand deposits (including resident foreign
currency deposits) with scheduled banks.

M2: Also known as Broad Money, it is an indicator used to measure money supply in the economy and
includes currency in circulation, other deposits with State Bank of Pakistan (such as unclaimed deposits
and NBFIs deposits with SBP), demand and time deposits (including resident foreign currency deposits)
with scheduled banks. M2 is the key economic indicator used to forecast inflation.

M3: A measure of money supply that includes M2 as well as large time deposits, institutional money
market funds, short-term repurchase agreements and other larger liquid assets. The definition of their
M3 is changing from year to year, as initially they were using Deposits of NBFIs, then moved to deposits
of Federal Banks for Co-operatives (FBC) (during FY03), and now to deposits of Punjab Public
Cooperative Banks (PPCB). This definition suffers from a serious problem of double counting as M2
definition of monetary aggregate includes the deposits of all scheduled banks (including FCB in past and
PPCB at present).
Values:

2014
2013
2012
2011
2010

M1 (Million PKR)
7,684,158
6,672,408
5,526,428
4,852,502
4,131,206

M2 (Million PKR)
9,778,624
8,668,480
7,433,179
6,555,481
5,615,061

M3 (Million PKR)
12,428,816
11,077,597
9,460,909
8,394,741
7,218,663

Monetary Economics

Assignment 1

2)
Commercial banks
1

Allied Bank Limited

Bank Al Habib

Bank Alfalah

Barclays Bank Pakistan

Faysal Bank

Habib Bank Limited

JS Bank

SILKBANK Limited

MCB Bank Limited

10

SCB Pakistan

Money market
mutual funds
UBL Money Market
Fund
Atlas Money Market
Fund
NAFA Money Market
Fund
Faysal Money Market
Fund
Lakson Money Market
Fund
HBL Money Market
Fund
HBL Islamic Money
Market Fund
PIML Islamic Money
Market Fund
Primus Daily Reserve
Fund

Savings & loan

associations
Asian Housing Finance
Limited
Grays Leasing Limited

IGI Money Market

Fund

House Building
Finance Company

NBP Leasing Limited

Orix Leasing Pakistan
Limited
Pak Gulf Leasing
Company Ltd.
Saudi Pak Leasing
Company Ltd.
Security Leasing
Corporation Ltd.
Sigma Leasing Limited
Standard Chartered
Leasing Ltd.

Savings and credit

associations
Escort Investment
Bank Ltd.
First Credit
Investment Bank Ltd.
First Dawood
Investment Bank Ltd.
IGI Investment Bank
Limited
Invest Capital
Investment Bank Ltd.
Security Investment
Bank Ltd.
Trust Investment
Bank Limited
PICIC Ltd.
Saudi-Pak Industrial
& Agricultural
Investment Co.
National Investment
Trust Limited

3)

2014
2013
2012
2011
2010

M1 multiplier
14.52031
14.08737
13.98047
13.91986
14.30355

M2 multiplier
18.4781
18.30166
18.80407
18.80501
19.44112

M3 multiplier
23.48602
23.388
23.93371
24.0811
24.9933

Formula used:
Multipliern = Mn/M0

Required reserve ratio

5%
5%
5%
5%
5%

Monetary Economics

Assignment 1

5)
Velocity of circulation:

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Velocity: M1
9.984553
9.459729
8.743972
8.70156
8.133868
7.206826
7.085836
7.629419
7.164987
5.539319
4.914653
4.918519
4.473009
3.810709
3.348702
4.750407
4.42413
2.448931
2.602395
2.430508
2.208501
1.962221
1.78474
1.538819
1.394174

Velocity: M2
7.026676
6.260326
5.238887
4.791083
4.148672
3.697547
3.381896
3.212996
2.852946
2.781642
2.59318
2.454135
2.226735
2.027985
1.847226
2.6011
2.383424
2.103031
1.891198
1.770941
1.624875
1.452477
1.32692
1.184478
1.095558

Velocity of Mn= GDP (constant prices)/Mn

For M3, data was not available for the years 2007 or before.
Graphs on the next page.

Velocity: M3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1.52036
1.38641
1.263914
1.134244
1.042525
0.926882
0.861953

Monetary Economics

Assignment 1

Monetary Economics

Assignment 1

References:

Analytical Accounts of State Bank

http://www.sbp.org.pk/ecodata/index2.asp

Glossary of terms, State Bank

http://www.sbp.org.pk/reports/stat_reviews/Bulletin/2012/Sep/Glossary.pdf

Mutual Funds Association of Pakistan

www.mufap.com.pk

Securities and Exchange Commission of Pakistan

www.secp.gov.pk

World Bank Data

http://databank.worldbank.org/

Pakistan Economy Handbook, State Bank of Pakistan

http://www.sbp.org.pk/departments/stats/PakEconomy_HandBook/

Stability of Money Demand Function in Pakistan, Muhammad Omer SBP Working Paper
Series, No. 36, August 2010
http://www.sbp.org.pk/publications/wpapers/2010/wp36.pdf

(All websites accessed on 12th Sept 2014 and 13th Sept 2014)