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Exchange Rate, Interest Rate and Ricardian Equivalence Evidence from Pakistan

  • Muhammad Waqas

    ()

    (Department of Economics, University of Sargodha, Pakistan)

  • Masood Sarwar Awan

    ()

    (Department of Economics, University of Sargodha, Pakistan)

The aim of this study is to investigate the validity of Ricardian Equivalence Hypothesis in Pakistan by using annual data from 1973-2010. In our previous studies we investigated the Ricardian Equivalence Hypothesis and its sources of deviation in Pakistan by using Structural Consumption function and Euler Equation approach. The present study investigated this hypothesis in terms of rate of interest and exchange rate. Results of Auto Regressive Distributed Lag cointegration investigate the long run relationship among variables. By using OLS technique this study rejected Ricardian Equivalence Hypothesis in case of Pakistan. The findings of the study demonstrate the focus towards the significance of fiscal policies in raising private consumption and controlling budget deficits.

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Article provided by Department of International Business and Economics from the Academy of Economic Studies Bucharest in its journal Romanian Economic Journal.

Volume (Year): Z (2012)
Issue (Month): SS ()
Pages: 249-269

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Handle: RePEc:rej:journl:v:15:y:2012:i:46:p:249-269
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  1. Carlos Fonseca Marinheiro, 2001. "Ricardian Equivalence: an Empirical Application to the Portugese Economy," Center for Economic Studies - Discussion papers ces0112, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  2. Leiderman, Leonardo & Razin, Assaf, 1988. "Testing Ricardian Neutrality with an Intertemporal Stochastic Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 1-21, February.
  3. Evans, Paul, 2001. "Consumer Behavior in the United States: Implications for Social Security Reform," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 568-82, October.
  4. Waqas, Muhamad & Awan, Masood Sarwar & Aslam, Muhammad Amir, 2011. "We are living on the cost of our children," MPRA Paper 32044, University Library of Munich, Germany.
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