Comparison of Various Business Cycle Models for Pakistan

In this paper, we compare the performance of different models, on two data frequencies, in terms of matching the business cycle moments of Pakistani economy. Out of the four models, two are simple real business cycle models for Pakistan introduced in Choudhary and Pasha (2013), and the other two are benchmark models [Aguiar and Gopinath (2007) and Garcia-Cicco et al. (2010)] from the literature for explaining the business cycles in emerging and developing economies. This paper calibrate these models for Pakistan and evaluate their performance in terms of matching second order moments from the actual data at both annual and quarterly frequency. We find that even though no single model is able to match all the relevant moments for all the important macroeconomic variables at both frequencies, the augmented RBC model with FDI shock (Choudhary and Pasha, 2013) performs relatively better. [SBP Working Paper Series No.89].