Inter-Dependencies in Budget Deficit and its Financing Sources in Pakistan (1960-2005)
The paper critically appraises causality, susceptibility to innovation of budget deficit, domestic borrowing from banking system and foreign borrowing. Secondary data is used, which was taken from annual Economic Survey of Pakistan (various issues), and International Financial Statistics (2005). For analysis, Vector Autoregressive (VAR) model with Impulse Response Function (IRF), Error Variance Decomposition and Granger Causality test is used. The study revealed that any innovation of one standard deviation took seven years for budget deficit and more than ten years for domestic bank borrowing and foreign borrowing to be effective. The variation in budget deficit is mostly explained by itself. Most of the variation in domestic bank borrowing is explained by budget deficit, while variation in foreign borrowing is mostly explained by budget deficit and domestic bank borrowing. Two unilateral causality are found and no bilateral causality, and in mostly independent relationships have been detected. Based on the finding the study suggests parallel and harmonized fiscal and monetary policy to reduce foreign reserves outflow. Fiscal policy is more vulnerable to shocks or innovations and monetary policy took longer time to become effective, so the gap between monetary policy formation and its implementation must be reduced.
|Date of creation:||2008|
|Date of revision:|
|Publication status:||Published in Sarhad Journal of Agriculture 4.24(2008): pp. 763-769|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Hsain, Fazal & Mahmood, Tariq, 2001.
"The Stock Market and the Economy in Pakistan,"
2721, University Library of Munich, Germany.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Nadeem A. Burney & Naeem Akhtar, 1992. "Government Budget Deficits and Exchange Rate Determination: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 31(4), pages 871-882.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Ahking, Francis W. & Miller, Stephen M., 1985. "The relationship between government deficits, money growthm and inflation," Journal of Macroeconomics, Elsevier, vol. 7(4), pages 447-467.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
- Barro, Robert J., 1978. "Comment from an unreconstructed Ricardian," Journal of Monetary Economics, Elsevier, vol. 4(3), pages 569-581, August.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:42031. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.