Abstract

This study is an empirical investigation of the relationship between M2, gross domestic product, inflation rate and interest rate. The study used secondary data obtained from Pakistan IMFs (World Development Indicators) over the period 1976-2012. Reliability and viability of the data is checked through various sources like IFS and World Bank. For estimation ADF (augmented dickey fuller) unit root test, Johansen’s co-integration tests and error correction analysis have been conducted in order to get reliable and verified results for this research. There exists a significant impact on real demand for money in the relationship between M2, gross domestic product, interest rate and inflation in Pakistan.