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.
Keywords: Capital Markets, Money Markets Currency Markets, ARDL Bounds Testing, Augmented VAR, TYDL Granger Causality