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The Effectiveness Of Monetary Policy Transformation In Pakistan: Exploring Monetary Neutrality Proposition

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  • Adeela Rustam

    (Nanjing University of Aeronautics and Astronautics, China)

  • Ying Wang

    (Nanjing University of Aeronautics and Astronautics, China)

Abstract

This study analyses the effectiveness of monetary policy innovations in Pakistan by price and quantity based monetary anchors. We hypothesize that state bank of Pakistan (SBP) cannot evaluate the unanticipated variations in inflation and output in the same year by applying a recursive limitation on structural vector autoregressive disturbances. The monetary policy is found partial in the short-term and rejects the impartiality condition. Whereas the monetary policy execution on price based tools has a robust effect on inflation and output level by rapid improvement. While transformation by quantity based policy, anchors has a mixed impact on economic activity. The effectiveness of policy innovations inclines more towards price anchors rather than quantity. The restricted SVAR suggest that the choice of policy and non-policy variables are essential for monetary policy operations. SBP policy transformation still has the potential to control economic fluctuations. Hence, we put forward the policy that SBP needs to concentrate on price based instruments for effective implementation and assessment of monetary policy.

Suggested Citation

  • Adeela Rustam & Ying Wang, "undated". "The Effectiveness Of Monetary Policy Transformation In Pakistan: Exploring Monetary Neutrality Proposition," Review of Socio - Economic Perspectives 201940, Reviewsep.
    • Handle: RePEc:aly:journl:201940
    DOI: https://doi.org/10.19275/RSEP066
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    More about this item

    Keywords

    Monetary Policy Effectiveness South Asia Economic Activity SVAR Pakistan;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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