Determinants of Money Demand by Business Sector for Extending Monetary Policy Applications in Pakistan

The complex interplay between monetary policy, cash holdings, and their motives holds crucial importance for the economic stability, investment decisions, and financial resilience of a developing country like Pakistan. The nation is enduring a difficult period where it has a weak domestic currency, a burden of foreign debt and adverse exchange rates. Under this situation, corporate cash-holding decisions are highly influenced by monetary policy, making it crucial to explore the determinants of money demand by the business sector to extend monetary policy implications in Pakistan. In order to understand the wider effects of Pakistan's monetary policy, it is crucial to look into the elements that influence the demand for money inside the business sector. Therefore, the current study explores the determinants of money demand by the business sector for extending monetary policy applications in Pakistan and the non-linear association between cash holdings and their motives in order to assess if the priorities of business change with the change in the incidence of cash holding motives. The study used the panel quantile regression for 315 firms listed in the KSE index. The model is merited on its ability to address non-normal variables while handling the panel data sets. The results indicate that all the indicators of demand for cash by firms have a non-linear effect. Transaction and speculative motives have an inverted U-shaped effect, while precaution motives have U shaped effect.