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Conducting Monetary Policy in South Asian Economies: An Investigation

Author

Listed:
  • Muhammad Arshad Khan

    (Associate Professor, Department of Management Sciences, COMSATS Institute of Information Technology, Islamabad)

  • Ather Maqsood Ahmed

    (Professor of Economics, School of Social Sciences and Humanities, National University of Sciences and Technology (NUST), Islamabad)

Abstract

Monetary policy which until recently aimed at targeting monetary aggregates has quietly given way to adjusting interest rates. Most of the Central Banks now focus on money reaction function that directly targets inflation or price level. This paper examines the way monetary policy is being conducted in the four major South Asian economies, namely, Bangladesh, India, Pakistan and Sri Lanka. The analysis is based on a variant of the Taylor rule framework. Using quarterly data over the period 1990Q1 to 2012Q4, the study finds that the monetary authorities in India, Pakistan and Sri Lanka have accommodated some degree of inflationary pressure, whereas Bangladesh has continuously smoothened interest rate while setting its monetary policy. Besides pursuing a mild monetary policy stance against inflation, India, Pakistan and Sri Lanka are also giving importance to foreign interest rate and real exchange rate movements to justify their relevance in monetary policy setting. However, the same has not been found to be true for Bangladesh.

Suggested Citation

  • Muhammad Arshad Khan & Ather Maqsood Ahmed, 2016. "Conducting Monetary Policy in South Asian Economies: An Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(3), pages 161-190.
    • Handle: RePEc:pid:journl:v:55:y:2016:i:3:p:161-190
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    File URL: http://www.pide.org.pk/pdf/PDR/2016/Volume3/161-190.pdf
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    References listed on IDEAS

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    3. Tayyaba Mukhtar & Muhammad Zeeshan Younas, 2019. "Monetary Policy Transmission Mechanism of Pakistan: Evidence from Bank Lending and Asset Price Channels," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 7(3), pages 121-139, September.
    4. Mohammed Saiful Islam & Mohammad T. Uddin, 2020. "Interest Rate Interactions between Bangladesh and the US: Possible Pass Through From the US," International Business Research, Canadian Center of Science and Education, vol. 13(7), pages 1-1, July.

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    More about this item

    Keywords

    Monetary Policy Rule; Central Banks; SAARC Countries;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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