Abstract

http://ssrn.com/abstract=1995426
 
 

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Measuring the Impact of Fiscal Policy on Price Level in Pakistan


Khalid Zaman


COMSATS Institute of Information Technology (CIIT)

Sehrish Rustam


affiliation not provided to SSRN

Nazish Bibi


affiliation not provided to SSRN

Saiqa Bibi


affiliation not provided to SSRN

Adeela Rustam


affiliation not provided to SSRN

Aqil Waqar


affiliation not provided to SSRN

Zahid- Ul-Haq


affiliation not provided to SSRN

January 30, 2012

FISCAL DEFICIT AND INFLATION: A NEW LOOK AT THE EMERGING MARKET EVIDENCE, T. Catao, M. Terrones, International Monetary Fund, 2001
ESTIMATION OF THE LONG-RUN COEFFICIENTS IN ERROR CORRECTION MODELS, Vol. 51, pp. 345-350, G. Bardsen, ed., Oxford Bulletin of Economics and Statistics, 1989

Abstract:     
A lack of price stability exerts harmful effects on the economy not only through changes in the price level but also through increased price level uncertainty. This paper investigates whether fiscal policy may have an impact on price volatility or not? The study further evaluates the short- and long-run impact of fiscal deficit and reserve money supply on price level in Pakistan. Dynamic short-run causality effects of fiscal deficit and seignorage towards price stability are also investigated in this study. Data is analyzed by autoregressive distributed lag model over a period of 1980-2010. The result indicates that if there is one percent increase in budget deficit, price level increases up to 0.11 percent, which shows that high fiscal deficit affecting inflationary expectations in the long-run. Result of the short-run causality test indicates that causality running from money supply to price level in Pakistan. The overall impact of the fiscal deficit on inflation operates through both increases in aggregate demand as well as associated growth in broad money.Thus, the role of money in inflation becomes obvious, but that process is largely conditioned by the fiscal
deficit.

Number of Pages in PDF File: 16

Keywords: fiscal deficit, seignorage, price level, cointegration, bounds testing, Pakistan

JEL Classification: E31, H50, H60

Accepted Paper Series





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Date posted: January 30, 2012  

Suggested Citation

Zaman, Khalid and Rustam, Sehrish and Bibi, Nazish and Bibi, Saiqa and Rustam, Adeela and Waqar, Aqil and Ul-Haq, Zahid-, Measuring the Impact of Fiscal Policy on Price Level in Pakistan (January 30, 2012). FISCAL DEFICIT AND INFLATION: A NEW LOOK AT THE EMERGING MARKET EVIDENCE, T. Catao, M. Terrones, International Monetary Fund, 2001. Available at SSRN: http://ssrn.com/abstract=1995426

Contact Information

Khalid Zaman (Contact Author)
COMSATS Institute of Information Technology (CIIT) ( email )
Plot #30, H-8/1
University Road Abbottabad
Abbottabad, North-West Frontier Province 22060
Pakistan
0334-8982744 (Phone)
Sehrish Rustam
affiliation not provided to SSRN ( email )
No Address Available
Nazish Bibi
affiliation not provided to SSRN ( email )
Saiqa Bibi
affiliation not provided to SSRN
No Address Available
Adeela Rustam
affiliation not provided to SSRN
No Address Available
Aqil Waqar
affiliation not provided to SSRN
Zahid- Ul-Haq
affiliation not provided to SSRN
No Address Available
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