Volatility of Monetary Policy in a Developing Economy: In Context of Pakistan

European Journal of Scientific Research, Vol. 36, No. 2, pp. 172-183, 2009

12 Pages Posted: 13 Feb 2012

See all articles by Sulaiman D. Muhammad

Sulaiman D. Muhammad

Federal Urdu University of Arts Science & Technology

Syed Khurram Arslan Wasti

University of Karachi - Applied Economics Research Center

Narjis Khatoon

University of Karachi - Applied Economics Research Center

Irfan Lal

Institute of Business Management (IoBM)

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

Abstract

This study is to analyze the volatility of the monetary policy in less developed countries like Pakistan is carried out for the period of 37 years from 1971 to 2007. Different econometrics techniques are used i.e. unit root analysis, Johnson co integration technique & error correction mechanism for long run and short run association respectively. Further objective of this study is to examine some hypothesis of the MacKinnon model with reference to Pakistan’s economy and scrutinize the instruments of monetary policy and determinants of money supply in Pakistan. The estimated results show that there is a long-run equilibrium association among variables but we didn’t able to predict short run equilibrium in first three models except the last model which reflects that real rate of interest and real private investment significantly effect the real money demand in the long run. The empirical results show that time deposits and broad money have a less volatile behavior in case of Pakistan’s economy and also explain that stock of money reserve causes a large portion of variation in money supply.

Keywords: Monetary Policy, Volatility, Co-Integration

JEL Classification: E42, C44

Suggested Citation

Muhammad, Sulaiman D. and Wasti, Syed Khurram Arslan and Khatoon, Narjis and Lal, Irfan, Volatility of Monetary Policy in a Developing Economy: In Context of Pakistan (2009). European Journal of Scientific Research, Vol. 36, No. 2, pp. 172-183, 2009, Available at SSRN: https://ssrn.com/abstract=2003786

Sulaiman D. Muhammad (Contact Author)

Federal Urdu University of Arts Science & Technology ( email )

Sector G-7/1, Main University Road
Gulshan-e-Iqbal
Karachi, Sindh 744000
Pakistan

Syed Khurram Arslan Wasti

University of Karachi - Applied Economics Research Center ( email )

University Road
Karachi, SC Sind 75270
Pakistan

Narjis Khatoon

University of Karachi - Applied Economics Research Center ( email )

University Road
Karachi, SC Sind 75270
Pakistan

Irfan Lal

Institute of Business Management (IoBM) ( email )

Plot # 84
Korangi Creek
Karachi, Sindh 75190
Pakistan

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