Measuring the effects of monetary policy in Pakistan: A factor augmented vector autoregressive approach
This paper examines the effects of monetary policy in Pakistan economy using a data rich environment. We used the Factor Augmented Vector Autoregressive (FAVAR) methodology, which contains 115 monthly variables for the period 1992:01 to 2010:12. We compare the results of VAR and FAVAR model and the results showed that FAVAR model explains the effects of monetary policy which are consistent with theory and better than VAR model. VAR model shows the existence of price puzzle and liquidity puzzle in Pakistan while FAVAR model did not provide any evidence of puzzles. FAVAR model supports the effectiveness of interest rate channel in Pakistan.
|Date of creation:||16 Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
- Bagliano, Fabio-Cesare & Favero, Carlo A., 1997.
"Measuring Monetary Policy with VAR Models: An Evaluation,"
CEPR Discussion Papers
1743, C.E.P.R. Discussion Papers.
- Bagliano, Fabio C. & Favero, Carlo A., 1998. "Measuring monetary policy with VAR models: An evaluation," European Economic Review, Elsevier, vol. 42(6), pages 1069-1112, June.
- Fabio C. Bagliano & Carlo A. Favero, . "Measuring Monetary Policy with VAR Models: an Evaluation," Working Papers 132, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Jörg Breitung & Sandra Eickmeier, 2006.
"Dynamic factor models,"
AStA Advances in Statistical Analysis,
Springer;German Statistical Society, vol. 90(1), pages 27-42, March.
- Jushan Bai & Serena Ng, 2000.
"Determining the Number of Factors in Approximate Factor Models,"
Boston College Working Papers in Economics
440, Boston College Department of Economics.
- Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
- Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
- Jon Faust & John H. Rogers & Eric Swanson & Jonathan H. Wright, 2003.
"Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data,"
Journal of the European Economic Association,
MIT Press, vol. 1(5), pages 1031-1057, 09.
- Jon Faust & John H. Rogers & Eric T. Swanson & Jonathan H. Wright, 2002. "Identifying the effects of monetary policy shocks on exchange rates using high frequency data," International Finance Discussion Papers 739, Board of Governors of the Federal Reserve System (U.S.).
- Faust, Jon & Rogers, John H. & Swanson, Eric & Wright, Jonathan H., 2002. "Identifying the effects of monetary policy shocks on exchange rates using high frequency data," Working Paper Series 0167, European Central Bank.
- Jon Faust & John H. Rogers & Eric Swanson & Jonathan H. Wright, 2003. "Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data," NBER Working Papers 9660, National Bureau of Economic Research, Inc.
- Ben Bernanke, 1990.
"The Federal Funds Rate and the Channels of Monetary Transnission,"
NBER Working Papers
3487, National Bureau of Economic Research, Inc.
- Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
- Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
- Alain Kabundi & Nonhlanhla Ngwenya, 2011. "Assessing Monetary Policy In South Africa In A Data‐Rich Environment," South African Journal of Economics, Economic Society of South Africa, vol. 79(1), pages 91-107, 03.
- Mahmood-ul-Hasan Khan, 2008. "Short Run Effects of an Unanticipated Change in Monetary Policy: Interpreting Macroeconomic Dynamics in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 4, pages 1-30.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
- Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
- Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
- Masahiko Shibamoto, 2007. "An Analysis Of Monetary Policy Shocks In Japan: A Factor Augmented Vector Autoregressive Approach," The Japanese Economic Review, Japanese Economic Association, vol. 58(4), pages 484-503.
- Blaes, Barno, 2009. "Money and monetary policy transmission in the euro area: evidence from FAVAR- and VAR approaches," Discussion Paper Series 1: Economic Studies 2009,18, Deutsche Bundesbank, Research Centre.
- Christopher A. Sims, 1992.
"Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy,"
Cowles Foundation Discussion Papers
1011, Cowles Foundation for Research in Economics, Yale University.
- Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
- Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
- Mahmood ul Hasan Khan, 2008. "Short-Run Effects of an Unanticipated Change in Monetary Policy: Interpreting Macroeconomic Dynamics in Pakistan," SBP Working Paper Series 22, State Bank of Pakistan, Research Department.
- Bernanke, Ben S. & Boivin, Jean, 2003.
"Monetary policy in a data-rich environment,"
Journal of Monetary Economics,
Elsevier, vol. 50(3), pages 525-546, April.
- Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 387-422.
- Javid, Muhammad & Munir, Kashif, 2011. "The price puzzle and monetary policy transmission mechanism in Pakistan: Structural vector autoregressive approach," MPRA Paper 30670, University Library of Munich, Germany.
- Gianluca Lagana & Andrew Mountford, 2005. "Measuring Monetary Policy In The Uk: A Factor-Augmented Vector Autoregression Model Approach," Manchester School, University of Manchester, vol. 73(s1), pages 77-98, 09.
- Miyao, Ryuzo, 2002. "The Effects of Monetary Policy in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 376-92, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35976. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.