Balance Sheet Channel of Monetary Policy and Economic Growth under Fiscal Dominance: Evidence from Pakistan
AbstractUsing micro data on non-financial listed companies in Pakistan, over the period of 2000-2010, this paper emphasizes over the impact of monetary policy on economic growth through balance sheet channel. At first step, monetary tightening deteriorates the net worth of the firms and leads to cash flow squeeze; of which later affects the economic growth. We find this impact to last for three years over the balance sheets of the firms. Since, industrial sector drives the economic growth; we forecast corporate profitability at the second step. Empirical investigation shows that corporate profitability reverts to its mean at the rate of 25 percent. During Peak, mean reversion is 30 percent while it is 19 percent during trough implying that recession stays relatively longer and economic revival is slow during recessionary phase.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41496.
Date of creation: 14 Sep 2012
Date of revision:
Monetary policy; monetary transmission; balance sheet channel; forecasting; profitability;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
- NEP-CWA-2012-09-30 (Central & Western Asia)
- NEP-MAC-2012-09-30 (Macroeconomics)
- NEP-MON-2012-09-30 (Monetary Economics)
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