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The Role of Money in Explaining Business Cycles for a Developing Economy: The Case of Pakistan

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  • Ahmed, Shahzad
  • Pasha, Farooq

Abstract

In this paper, we establish the empirical linkages between nominal and real variables of Pakistani economy using both annual and quarterly data. The focus of our empirical analysis has been limited to the post financial liberalization period starting in early 1990s. Furthermore, this paper theoretically evaluates the role of money and monetary policy in propagating business cycle fluctuations of Pakistani economy using different ways of introducing the role of money via money in utility (MIU) and cash in advance constraint (CIA) as well as with different formulation of monetary policy either through a money growth rule or Taylor type interest rate rule.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 55262.

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Date of creation: 11 Apr 2014
Date of revision: 11 Apr 2014
Handle: RePEc:pra:mprapa:55262

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Keywords: General Equilibrium Models; Modeling and Simulations; Monetary Policy;

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References

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  1. Arby, Muhammad Farooq, 2008. "Some Issues in the National Income Accounts of Pakistan (Rebasing, Quarterly and Provincial Accounts and Growth Accounting)," MPRA Paper, University Library of Munich, Germany 32048, University Library of Munich, Germany.
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers, National Bureau of Economic Research, Inc 7147, National Bureau of Economic Research, Inc.
  3. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 51(4), pages 609-682.
  4. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 491-513, May.
  5. Hanif, Nadim & Iqbal, Javed & Malik, Jehanzeb, 2013. "Quarterisation of national income accounts of Pakistan," MPRA Paper, University Library of Munich, Germany 45334, University Library of Munich, Germany.
  6. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers, UCLA Department of Economics 496, UCLA Department of Economics.
  7. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
  8. Ireland, Peter N, 2000. "Interest Rates, Inflation, and Federal Reserve Policy since 1980," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 32(3), pages 417-34, August.
  9. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(3), pages 309-327, November.
  10. M. Ali Choudhary & Saima Naeem & Abdul Faheem & Nadim Haneef & Farooq Pasha, 2011. "Formal Sector Price Discoveries: Results from a Developing Country," School of Economics Discussion Papers, School of Economics, University of Surrey 1011, School of Economics, University of Surrey.
  11. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
  12. Robert G. King & Charles I. Plosser, 1982. "The Behavior of Money, Credit, and Prices in a Real Business Cycle," NBER Working Papers, National Bureau of Economic Research, Inc 0853, National Bureau of Economic Research, Inc.
  13. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  14. Haider, Adnan & Khan, Safdar Ullah, 2008. "A Small Open Economy DSGE Model for Pakistan," MPRA Paper, University Library of Munich, Germany 12977, University Library of Munich, Germany, revised 17 Jan 2009.
  15. Ahmed, Shahzad & Ahmed, Waqas & Khan, Sajawal & Pasha, Farooq & Rehman, Muhammad, 2012. "Pakistan Economy DSGE Model with Informality," MPRA Paper, University Library of Munich, Germany 53135, University Library of Munich, Germany.
  16. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(5), pages 919-44, October.
  17. Shanaka J. Peiris & Magnus Saxegaard, 2007. "An Estimated Dsge Model for Monetary Policy Analysis in Low-Income Countries," IMF Working Papers, International Monetary Fund 07/282, International Monetary Fund.
  18. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1123-1175, 09.
  19. M. Ali Choudhary & Farooq Pasha, 2013. "The RBC View of Pakistan: A Declaration of Stylized Facts and Essential Models," School of Economics Discussion Papers, School of Economics, University of Surrey 0413, School of Economics, University of Surrey.
  20. Arby, Muhammad Farooq & Batool, Irem, 2007. "Estimating Quarterly Gross Fixed Capital Formation," MPRA Paper, University Library of Munich, Germany 4956, University Library of Munich, Germany.
  21. Nicolini, Juan Pablo, 1998. "Tax evasion and the optimal inflation tax," Journal of Development Economics, Elsevier, Elsevier, vol. 55(1), pages 215-232, February.
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