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Comparative analysis of monetary and fiscal Policy: a case study of Pakistan

  • Jawaid, Syed Tehseen
  • Arif, Imtiaz
  • Naeemullah, Syed Muhammad

This study investigates the comparative effect of fiscal and monetary policy on economic growth in Pakistan using annual time series data from 1981 to 2009. The cointegration result suggests that both monetary and fiscal policy have significant and positive effect on economic growth. The coefficient of monetary policy is much greater than fiscal policy which implies that monetary policy has more concerned with economic growth than fiscal policy in Pakistan. The implication of the study is that the policy makers should focus more on monetary policy than fiscal to enhance economic growth. The role of fiscal policy can be more effective for enhancing economic growth by eliminating corruption, leakages of resources and inappropriate use of resources. However, the combination and harmonization of both monetary and fiscal policy are highly recommended.

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File URL: http://mpra.ub.uni-muenchen.de/30850/1/MPRA_paper_30850.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30850.

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Date of creation: Dec 2010
Date of revision: Dec 2010
Publication status: Published in Nice Research Journal 1.3(2010): pp. 58-67
Handle: RePEc:pra:mprapa:30850
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Web page: http://mpra.ub.uni-muenchen.de

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  1. A. O. Olaloye & S. I. Ikhide, 1995. "Economic sustainability and the role of fiscal and monetary policies in a depressed economy: The case of Nigeria," Sustainable Development, John Wiley & Sons, Ltd., vol. 3(2), pages 89-100.
  2. Shahid Ali & Somia Irum & Asghar Ali, 2008. "Whether Fiscal Stance or Monetary Policy is Effective for Economic Growth in Case of South Asian Countries?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(4), pages 791-799.
  3. Ali F. Darrat, 1984. "The Dominant Influence of Fiscal Actions in Developing Countries," Eastern Economic Journal, Eastern Economic Association, vol. 10(3), pages 271-284, Jul-Sep.
  4. Leonall C. Andersen & Jerry L. Jordon, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 11-23.
  5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  6. Elliott, J W, 1975. "The Influence of Monetary and Fiscal Actions on Total Spending: The St. Louis Total Spending Equation Revisited," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 7(2), pages 181-92, May.
  7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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