Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142608
Authors: 
Jehan, Zainab
Rashid, Abdul
Year of Publication: 
2011
Series/Report no.: 
EERI Research Paper Series 01/2011
Abstract: 
This study empirically investigates how shocks to monetary policy measures (short-term nominal interest rate and broad money supply) affect economic aggregates: output growth, price levels and nominal exchange rate. The study is carried out for Pakistan using quarterly data covering the period from 1980 to 2009. In doing this, Johansen’s (1988) co integration technique and vector error correction model are applied to explore the long-run relationship among the variables. We find significant evidence on the existence of a long-run stable relationship between our monetary measures and economic aggregates. The impulse response functions (IRFs) are computed to examine the response of each macroeconomic variable to a standard deviation shock to monetary measures. The IRF graphs reveal a price puzzle in closed as well as in open economy model. However, an initial appreciation of exchange rate is observed, indicating the overshooting hypothesis phenomenon for Pakistan.
Subjects: 
Monetary Policy
Economic Aggregates
VECM
Impulse Response Function
JEL: 
C3
E4
E5
Document Type: 
Working Paper

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