The Economics of Inflation, Issues in the Design of Monetary Policy Rule, and Monetary Policy Reaction Function in Pakistan
The objective of this study is to estimate a monetary policy reaction function for Pakistan. To do this, we use data for the period 1992Q4–2010Q2. Our results show that the State Bank of Pakistan reacts to changes in the inflation rate and economic activity in a manner that is consistent with the Taylor (1993) rule, and with the explicit objective of interest rate smoothing and exchange rate management. This policy has remained consistent for most of the sample period, except for the last two years, during which a price hike and the massive depreciation of domestic currency led to a significant change in the parameters of the policy reaction function. We also find evidence of nonlinearity in the reaction function as the response to an inflation rate above 6.4 percent is found to be more aggressive than that in low inflationary episodes.
Volume (Year): 16 (2011)
Issue (Month): Special Edition (September)
|Contact details of provider:|| Postal: Intersection Main Boulevard Phase VI DHA and Burki Road, Lahore|
Phone: (92-42) 6560939
Web page: http://www.lahoreschoolofeconomics.edu.pk/EconomicsJournal/LJEIntro.aspx
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John B. Taylor, 1998.
"An Historical Analysis of Monetary Policy Rules,"
NBER Working Papers
6768, National Bureau of Economic Research, Inc.
- Lars E. O. Svensson, 2000.
"Open-Economy Inflation Targeting,"
NBER Working Papers
6545, National Bureau of Economic Research, Inc.
- Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
- Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
- Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
- anonymous, 2005. "Monetary policy report to the Congress," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sum, pages 319-343.
- anonymous, 2005. "Monetary policy and the economy," Monograph, Board of Governors of the Federal Reserve System (U.S.), number 2005mpat.
- Hess Chung & Troy Davig & Eric M. Leeper, 2007.
"Monetary and Fiscal Policy Switching,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(4), pages 809-842, 06.
- Troy A. Davig & Eric M. Leeper & Hess Chung, 2005. "Monetary and fiscal policy switching," Research Working Paper RWP 05-12, Federal Reserve Bank of Kansas City.
- Hess Chung & Troy Davig & Eric Leeper, 2004. "Monetary and Fiscal Policy Switching," Computing in Economics and Finance 2004 325, Society for Computational Economics.
- Troy Davig & Eric M. Leeper & Hess Chung, 2004. "Monetary and Fiscal Policy Switching," NBER Working Papers 10362, National Bureau of Economic Research, Inc.
- Hess Chung & Troy Davig & Eric Leeper, 2004. "Monetary and Fiscal Policy Switching," Econometric Society 2004 North American Summer Meetings 274, Econometric Society.
- Laurence Ball, 1998.
"Policy Rules for Open Economies,"
NBER Working Papers
6760, National Bureau of Economic Research, Inc.
- Robert J. Barro & David B. Gordon, 1981.
"A Positive Theory of Monetary Policy in a Natural-Rate Model,"
NBER Working Papers
0807, National Bureau of Economic Research, Inc.
- Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
- Wasim Shahid Malik & Ather Maqsood Ahmed, 2010. "Taylor Rule and the Macroeconomic Performance in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(1), pages 37-56.
- Rodrigo Caputo & Felipe Liendo, 2005. "Monetary Policy, Exchange Rate and Inflation Inertia in Chile: a Structural Approach," Working Papers Central Bank of Chile 352, Central Bank of Chile.
- anonymous, 2005. "Monetary policy report to the Congress," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Spr, pages 117-142.
- Taylor, John B, 2000. "Alternative Views of the Monetary Transmission Mechanism: What Difference Do They Make for Monetary Policy?," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 60-73, Winter.
- John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May.
- Arby, Muhammad Farooq, 2008. "Some Issues in the National Income Accounts of Pakistan (Rebasing, Quarterly and Provincial Accounts and Growth Accounting)," MPRA Paper 32048, University Library of Munich, Germany.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- anonymous, 2005. "The implementation of monetary policy," Monograph, Board of Governors of the Federal Reserve System (U.S.), number 2005tiom.
When requesting a correction, please mention this item's handle: RePEc:lje:journl:v:16:y:2011:i:sp:p:213-232. 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: (Shahid Salahuddin)
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.