Advanced Search
MyIDEAS: Login to save this article or follow this journal

Policy of Inflation Targeting in the Presence of Fiscal Deficit and External Debt: Opt or Not to Opt

Contents:

Author Info

  • M. Ali Kemal

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

The main task of the macroeconomic policy-makers is to control unemployment and inflation at the minimum possible level. Different policies have been tried to control inflation at its minimum possible level and inflation targeting is the most popular among them. It is the commitment to maintain inflation at the announced level and use interest rate as an instrument to control it if it is expected to diverge from the announced level. However in a higher ?dollar denominated debt? country Central Bank is reluctant to increase interest rate because it pressurises the foreign exchange market, which leads to exchange rate depreciation. If there is exchange rate pass through effect to prices, depreciation leads to increase in prices. Thus increase in interest rate does not decrease prices instead results in increase in prices. The two important linkages were tested in this study are (i) increase in real interest rate depreciates the currency, and (ii) depreciation in real exchange rate leads to increase in prices. Using VAR model we concluded that real exchange rate is not significantly associated to the real interest rate in the short run and exchange rate pass through effect to prices is not present in Pakistan

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.pide.org.pk/pdf/Volume50/Issue4-2011.pdf
Download Restriction: Access to the full text is restricted. Please contact our publication Division for full article Email: publications@pide.org.pk Phone: +92-51-9248089

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 50 (2011)
Issue (Month): 4 ()
Pages: 841-852

as in new window
Handle: RePEc:pid:journl:v:50:y:2011:i:4:p:841-852

Contact details of provider:
Postal: P.O.Box 1091, Islamabad-44000
Phone: (92)(51)9248051
Fax: (92)(51)9248065
Email:
Web page: http://www.pide.org.pk
More information through EDIRC

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:50:y:2011:i:4:p:841-852. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Khurram Iqbal).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.