Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis

Muhammad Raashid (mraashid505@gmail.com), Abdul Saboor and Shahzad Ahmad
Additional contact information
Muhammad Raashid: Muhammad Raashid Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi-Pakistan
Abdul Saboor: Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi-Pakistan
Shahzad Ahmad: State Bank of Pakistan and Institute of Business Administration, Karachi-Pakistan

Business Review, 2020, vol. 15, issue 1, 50-66

Abstract: This paper explores the impact of fiscal spending on key macroeconomic indicators for Pakistan economy using an estimated open economy new Keynesian dynamic stochastic general equilibrium (DSGE) model. Results show that a positive shock to government consumption leads to fall in private consumption, private investment and exports owing to negative wealth effect, rise in interest rate and domestic currency appreciation, respectively. Imports and inflation also rise. Estimated values of present value fiscal multipliers are 0.54, 0.29 and 0.18 after 1 year, 5 years and 10 years, respectively. These results show that although positive in the short run, yet the magnitude of the fiscal multiplier is very low in the case of Pakistan. Sensitivity analysis shows that the value of the multiplier marginally rises with rise in degree of price stickiness. Transitory shocks have a substantially higher multiplier relative to persistent shocks.

Keywords: General; equilibrium; ·; Models; and; applications; ·; Fiscal; policy (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://businessreview.iba.edu.pk/articles/fiscal- ... chanism-pakistan.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aho:journl:v:15:y:2020:i:1:p:50-66

Access Statistics for this article

Business Review is currently edited by sshabbar

More articles in Business Review from School of Economics and Social Sciences, IBA Karachi Contact information at EDIRC.
Bibliographic data for series maintained by sshabbar (sshabbar@iba.edu.pk).