CEVERAL years ago I proposed a theory to explain how the supply in a developing country is determined which allows for factors other than the traditionally assumed control by a central bank [6]. Its validity was tested with an econometric quarterly model for Pakistan, 1953-1961. The passage of time makes it possible to reappraise the model which is the purpose of this paper. With the benefit of hindsight and reflections about economic model building, the reappraisal suggests that what I proposed as a general description of in a developing economy, in fact, more closely resembled a stationary one. Although some differences of opinion exist, economists agree that Pakistan's development during the 1950's was far less dynamic, albeit certainly not nonexistent, than what has since occurred.' My purpose, however, is not to propose a revised theory of how the supply is really determined in a developing economy, but rather to appraise quantitatively the extent to which the model's predictive capacity after 1961 differs from its performance during the original period. Though this is a more modest objective than attempting to reconstruct a theory which would incorporate the important developments of the 1960's, appraising the predictive capacity of econometric models during periods beyond that which was used for the original fitting, is a worthwhile endeavor which economists should more frequently practice. The postwar era has seen a tremendous growth in econometric studies. Generally, they have two features in common. First, although they really belong to the realm of economic history because the objective is to obtain the best fit to explain a set of for some past period, the hope is usually present that the estimated relationships should be useful to understand (i.e., predict) future changes, given a new set of new exogenous conditions. Second, except for narrowly conceived forecasting models which are often revised annually, we rarely have an opportunity to judge whether history repeats itself in the sense that the model's predictive capacity remains high for a new period beyond the time for which the original parameters were estimated.2 As has been suggested elsewhere, the infrequent publication of the predictive performance of econometric models is due to the fact that few investigators are willing to choose a specification on the basis of less than a complete set of the available data [3, p. 11].' Here, I hope to make amends for not having practiced in my original article what is here preached about the testing for predictive performance. My earlier article showed that the predictive performance of the model's structural equations was generally good and, furthermore, the model's capacity to explain the supply was demonstrated to be superior to a simple money multiplier model where certain controllable assets of the central bank were used to predict the supply. One simulation experiment which used the original initial conditions and the values of the exogenous variables produced a new set of predicted values which suggested that the model was quite stable, at least over the 34 quarters between July 1953 and December 1961, for which the parameters were estimated. In this paper I test, during 24 additional quarterly observations for the years 1962

HE quantity of money in economic modT els traditionally has been assumed (by Keynes, as well as others) to be an exogenously determined variable controlled uniquely by the monetary authorities. Traditional theory argues that, in a fractional reserve system, money supply is a constant multiple of the reserve bank's monetary liabilities which are controlled via the conventional instruments open market operations, changes in the required reserves ratio, and variations in the discount rate.' A current survey of monetary theory and policy states that the theory of money supply is virtually an unexplored area of monetary research.2 The contemporary theoretical and empirical controversies arising around the role of financial intermediaries reflect an awakening interest in money; and several recently completed studies of the money supply in developed economies provide further proof of this new interest.3 This study is intended to further knowledge of the process by which the supply of money is determined, but unlike previous studies it concerns money in a developing economy.