Abstract
This study analyzes the dynamic interlinkages between money, currency, and
capital markets for Pakistan using Autoregressive-Distributed Lag (ARDL)
Bounds testing, and Augmented Vector Autoregression (VAR). Furthermore, we
employ the Toda and Yamamoto (1995) and Dolado and Lutkepohl (1996)-TYDLmethodology to examine the causal relationship between money, currency, and
capital markets over the period of January 2001 to June 2014. The empirical
findings based on the ARDL Bounds testing show that a steady state long run
equilibrium relation exists among the three markets of Pakistan which is also
confirmed by the Johansen cointegration analysis. Moreover, the empirical
results of the TYDL Granger Non-causality establish interlinkages among the
three markets suggesting bi-directional causality among stock market and
currency market whereas unidirectional causal flow is been established from
money market to stock market and from currency market towards money market
of Pakistan. Provided with the fact that the three markets are interlinked, it is
therefore suggested that any policy measure in this regard should be mindful of
the implications of the decision.
Abdur Rahman Aleemi, Dr. Muhammad Azam. (2017) The Integration of Financial Markets in Pakistan: New Extensions and Evidence from Bounds Testing and TYDL Granger NonCausality Approach, Abasyn Journal of Social Sciences, Volume-10, Issue-1.
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