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The Nexus Amongst the Interest Rate, Inflation and Economic Growth in Pakistan: Evidence from Simultaneous Equation Modeling

Author

Listed:
  • Ijaz Uddin

    (Abdul Wali khan university Mardan, Pakistan)

  • Rafi Ullah

    (Khyber Pakhtunkhwa, Pakistan)

Abstract

The main objective of this empirical study is to analyze the nexus amongst the interest rate, inflation and economic growth in Pakistan: evidence from simultaneous equation modeling, for the period from 1970- 2019. The estimate of the ADF test shows that all variables are a mixed order of integration, and the Johensan cointegration estimate reveals that there exist long-run relations amongst the variables. The estimate of the robust least square shows that inflation, unemployment, money supply, exchange rate, and budget deficit, have a positive effect on GDP per capita, while interest rate, total investment, and FDI have a negative effect on GDP per capita. Moreover, inflation and exchange rate have a positive effect on interest rate, while money supply, budget deficit, and FDI have a negative effect on interest rate. Furthermore, the interest rate has a positive effect on inflation, while unemployment and money supply have negative effects on inflation. Policymakers should adopt a sound macroeconomic policy to enhance economic growth and control the interest rate and inflation.

Suggested Citation

  • Ijaz Uddin & Rafi Ullah, 2024. "The Nexus Amongst the Interest Rate, Inflation and Economic Growth in Pakistan: Evidence from Simultaneous Equation Modeling," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 45-58, March.
    • Handle: RePEc:nwe:eajour:y:2024:i:1:p:45-58
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    File URL: https://www.unwe.bg/doi/eajournal/2024.1/EA.2024.1.04.pdf
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    More about this item

    Keywords

    economic growth; interest rate; inflation; Simultaneous Equation Modeling; Pakistan.;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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