European Journal of Scientific Research, Vol. 36, No. 2, pp. 172-183, 2009
12 Pages Posted: 13 Feb 2012
Date Written: 2009
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: 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