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Inter-dependencies and Causality in the Macroeconomic Variables: Evidence from Pakistan (1960-2005). Sarhad J. Agric. 24 (1): 199-205

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  • Khan, Abdul Qayyum Khan
  • Khattak, Naeem Ur Rehman Khattak
  • Hussain, Anwar Hussain

Abstract

This paper critically evaluates the inter-relationship, vulnerability to innovation, and causality among the macroeconomic variables (budget deficit, economic growth, unemployment and poverty). Annual data for the period 1960-2005 is used, taken from Economic Survey of Pakistan and International Financial Statistics. Vector Autoregressive (VAR) model with impulse response function (IRF), error variance decomposition and Granger Causality test is used for the analysis. The study revealed that any innovation of one standard deviation took seven years for economic growth and budget deficit, eight years for unemployment and more than ten years for poverty reduction. The response of the macroeconomic variables to innovation or impulses introduced is mostly explained in their own. Only two unilateral causality are found. Bilateral causality is not found, and mostly independent type relationships are detected. Based on the finding of the study it is recommended, that target oriented fiscal policies should be focused on and the gap between policy formation and implementation must be reduced.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42034.

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Date of creation: 2008
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Publication status: Published in Sarhad Journal of Agriculture 1.24(2008): pp. 199-205
Handle: RePEc:pra:mprapa:42034

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Keywords: interdependency in macroeconomic variables; causality in macroeconomic variables;

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  1. Ali Darrat, 2000. "Are budget deficits inflationary? A reconsideration of the evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 633-636.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  3. Karras, Georgios, 1994. "Macroeconomic effects of budget deficits: further international evidence," Journal of International Money and Finance, Elsevier, vol. 13(2), pages 190-210, April.
  4. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  5. Ahking, Francis W. & Miller, Stephen M., 1985. "The relationship between government deficits, money growthm and inflation," Journal of Macroeconomics, Elsevier, vol. 7(4), pages 447-467.
  6. Ali F. Darrat, 1985. "Inflation and Federal Budget Deficits: some Empirical Results," Public Finance Review, , vol. 13(2), pages 206-215, April.
  7. Dwyer, Gerald P, Jr, 1982. "Inflation and Government Deficits," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 315-29, July.
  8. George Hondroyiannis & Evangelia Papapetrou, 1994. "Cointegration, causality and the government budget-inflation relationship in Greece," Applied Economics Letters, Taylor & Francis Journals, vol. 1(11), pages 204-206.
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