Macroeconomic Effects of Global Food and Oil Price Shocks to the Pakistan Economy: A Structural Vector Autoregressive (SVAR) Analysis
This study examines the transmission channels through which the global food and oil price shocks affects selected macroeconomic variables including inflation rate, output, money balances, interest rate and real effective exchange rate for Pakistan using monthly data over the period 1990M1-2011M7. An empirical analysis is carried out by employing structural vector autoregressive (SVAR) framework. Generalised Impulse Response Functions and Generalised Forecast Variance Decompositions are employed to track the impact of oil and food price shocks to Pakistan‘s economy. Results suggest that oil price shock affects industrial production, appreciates real effective exchange rate negatively and affect inflation and interest rate positively. Whereas, following food price shocks, industrial output increases. Similarly, interest rate and inflation rate responds positively following food price shocks. However, the variation in interest rate due to food price shock is relatively larger than that of oil price shocks. Generalised impulse response functions reveal that real effective exchange rate is most important source of disturbances following either oil price or food price shocks. Generalised forecast variance decompositions analysis also supports the findings based on generalised impulse response functions. The result clearly reveals that oil and food price shocks significantly affect output, short-term interest rate, inflation rate and real effective exchange rate. However, among all, real effective exchange rate has seen a dominant source of variations in Pakistan. This implies that supply-side and demand-side disturbances originated by external shocks are the major sources of inflation (stagflation) in Pakistan.
Volume (Year): 50 (2011)
Issue (Month): 4 ()
|Contact details of provider:|| Postal: |
Web page: http://www.pide.org.pkEmail:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:50:y:2011:i:4:p:491-511. 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.