The paper presents and tests a theory of the demand for money that is derived from a general equilibrium, endogenous growth economy, which in e¤ect combines a special case of the shopping time exchange economy with the cash-in-advance framework. The model predicts that both higher in‡ation and …nancial innovation that reduces the cost of credit induce agents to substitute away from money toward...

This paper attempts to model a real demand for money function of Pakistan. For this purpose we apply bounds test based cointegration technique using the time series data for the period 1973 to 2010. Our findings included three determinants: 1) real income and 2) foreign exchange contain positive relation as well as for both long run and short run dynamics they are the most significant factors o...